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Will new tax laws on alimony affect your divorce?

New tax laws are coming into effect on January 1, 2019, and the laws cover several areas in which taxpayers can claim deductions, such as alimony payments. Taxation on alimony is an important factor to consider when facing divorce because you need to know whether you will be responsible for paying taxes on that money.

If you are already divorced, you should know that the new tax laws will not affect your already-established alimony payments. You will continue to make payments as you always have, and the taxation regime will remain the same. However, if you will finalize your divorce anytime starting in 2019, you should understand how these changes work.

Who pays taxes on alimony?

Divorcing couples need to know how their divorce agreement or court order will affect their financial future. When alimony payments are part of the divorce settlement, it is crucial to know which of the spouses must pay taxes on alimony payments. Currently, and through the end of 2018, the spouse who makes the alimony payment can deduct that payment from taxes. The spouse who receives the payment is responsible for paying taxes on it. 

The changes brought about by the Tax Cuts and Jobs Act reverse the current scenario. Starting in 2019, the spouse who makes the alimony payment no longer deducts that payment from taxes, and the spouse who receives the payment will not have to pay taxes on it.

How can a divorcing couple keep control over finances?

If you and your former spouse are unable to find common ground as you move through your divorce, you will have to go to court and a judge will make decisions about your financial situation based on the parameters set forth by the law. However, if you and your former spouse are willing to open yourselves to a negotiation process, you can maintain much of the control in terms of decision-making over your financial future. Alternatives to courtroom divorces, such as collaborative divorce and strategic divorce mediation, are effective solutions that can keep you out the courtroom and help you move through the divorce in a more timely and cost-effective way.

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