Here’s how the federal tax changes will impact future divorce agreements and judgements
The newly enacted federal tax law will have a substantial impact on future divorce agreements and judgments. The new federal law eliminates the deduction for alimony for separation agreements signed after 2018. In the past, alimony payments were deductible by the payor and includable in the gross income of the recipient.
Massachusetts enacted its alimony reform act in 2012. According to these laws, the payor of alimony could deduct these payments and the receiver would have it taxed as income. The Massachusetts reform act established a mathematical calculation to determine how much alimony should be paid. Generally, alimony would be awarded in the amount of 30-35% of the difference in their gross incomes of the parties. This was based on a percentage of the difference between the income of the payor (the person paying alimony) and the recipient of the alimony payment, and took into account that the payments could be deductible and taxable. However, due to the changes in what can be deducted or taxable in the Federal Tax Law Reform, the legislature will have to reexamine the way alimony is calculated moving forward.
Without some change in the Massachusetts Alimony statute, lawyers representing couples in a divorce will have to consider these changes and argue for deviations from the standard range of alimony orders. Contact O’Connor and Ryan to support you in your family law issues, even in the midst of the Federal tax law changes.