People who live in Montana and are getting divorced know how difficult it can be to come to a final settlement agreement regardless of the circumstances. When faced with the prospect of paying even more money in taxes if a divorce is finalized in 2019 versus in 2018, one can understandably want to ensure that a final judgement is achieved this year. That is precisely what many may actually be doing in light of some significant changes afoot in the New Year.
As reported by Bloomberg, one provision of the Tax Cuts and Jobs Act is to essentially flip flop the tax liability for spousal support payments away from the spouse who receives such funds to the spouse who makes the alimony payments. At first glance, some people might think that a spouse who would be awarded alimony could find this change favorable. However, that may not be the case for two reasons.
The person who pays spousal support is most commonly in a tax bracket higher than the recipient. This means that in addition to paying alimony, that person will pay more in taxes on the alimony than the recipient spouse would have. This, in turn, reduces the overall couple’s assets and may have a negative impact on the overall divorce settlement.
Another concern is how the tax change may impact agreements on other aspects of a couple’s settlement. In the past, the agreement to pay alimony was sometimes made in exchange for another concession. With this now removed, some spouses may fight the payment of alimony harder or be less willing to negotiate on other points.