Will the New Tax Law Lead to More Divorces?
It's only a matter of time before divorce lawyers start thanking the recently passed tax bill for all their new clients. Experts believe that changes to the way alimony is taxed will lead to a spike in divorces. This is likely due to the fact that anyone that was putting off divorce because of the fear of alimony is probably not going to want to wait any longer.
The new tax law eliminates the tax deduction for an alimony paying spouse, while also re-characterizes the payment to no longer be considered income for the recipient. The catch, and the fact that current payers of alimony will be pleased to hear: the law will not apply to divorces or separations signed before 2019. However, that 2019 deadline means that individuals that were putting off divorce for financial reasons might be rethinking things.
Taxonomy of Taxing Alimony
By reclassifying alimony as not income to the recipient, it would, in theory, result in both more money being received and more money being paid, almost any way you slice it. However, this is likely to spawn arguments to pay less alimony from the payer due to the fact that the lack of the tax deduction will result in higher tax liabilities, and less take home pay.
Critics of the prior method of taxing alimony claim that it allowed some divorced people to gain significant tax advantages. For example, after adjusting for alimony, a payer could be in a lower tax bracket, and the alimony recipient is almost certain to be in an even lower tax bracket.
Capitalizing on the Divorce Rush
For divorce attorneys, now might be the time to do some educational marketing. Though, you probably want to err on the side of caution when it comes to marketing that encourages divorce. Adding a few blog posts, or info pages, on your website about the new tax implications for alimony, and especially the deadline, could pay off (particularly if your practice is plugged into social media, or has a decent newsletter subscription following).
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