Divorce is a painful reality for many people, both emotionally and financially. Quite often, the last thing on anyone's mind is the effect a divorce or separation will have on their tax situation. To make matters worse, most court decisions do not consider the effects divorce or separation has on your tax situation, which is why it's always a good idea to speak to an accounting professional before anything is finalized.

Furthermore, tax rules regarding divorce and separation can and do change - as they recently did under tax reform. Divorced and separated individuals should be aware of tax law changes that took effect in 2019.

Who is Impacted

The new rules relate to alimony or separate maintenance payments under a divorce or separation agreement and includes all taxpayers with:

  • Divorce decrees.
  • Separate maintenance decrees.
  • Written separation agreements.

Tax reform did not change the tax treatment of child support payments which are not taxable to the recipient or deductible by the payor.

Timing of Agreements

Agreements executed beginning January 1, 2019 or later. Alimony or separate maintenance payments are not deductible from the income of the payor spouse, nor are they includable in the income of the receiving spouse if made under a divorce or separation agreement executed after December 31, 2018.

Agreements executed on or before December 31, 2018 and then modified. The new law applies if the modification does these two things:

  • Changes the terms of the alimony or separate maintenance payments.
  • Specifically states that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Agreements executed on or before December 31, 2018. Before tax reform, a taxpayer who made payments to a spouse or former spouse could deduct it on their tax return. The taxpayer who receives the payments is required to include it in their income. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications do not:

  • Change the terms of the alimony or separate maintenance payments.
  • Specifically state that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Tax reform made an already complicated situation even more so. Don't hesitate to call if you have any questions about the tax rules surrounding divorce and separation.