Be Aware: Current Tax Plan Includes a Divorce 'Penalty'!



As it stands now, the ex-spouse receiving support payments (alimony) must pay tax on those payments because they are considered income. The ex-spouse paying the support payments gets a tax deduction for making those payments.

The current GOP proposed tax plan changes that. If the new plan is passed by the House and Senate, and this particular provision survives, the payee will lose the tax deduction for alimony because it will be considered to have been paid from after-tax dollars, and would be tax free for the recipient.

As to the legislators' reasoning behind this change, there are a number of possibilities. It could be that a plurality feel the current arrangement amounts to a subsidy that makes divorce more desirable, and in their (often religiously-influenced) thinking believe that turning the tables would force more couples to stay married.

But I think it's more likely that the House GOP has combed through the tax code looking for anywhere they could save money that could then be used for their overriding goal of cutting taxes for the rich. When alimony is a factor in a divorce, it is fairly predictable that the paying spouse earns significantly more than the payee. And, let's face it, in this world that paying spouse is usually the husband. By removing the tax deduction for alimony, the money the man would receive can be redirected to another government target.

It's early yet, and there are signs that moving the tax plan through the House and Senate may not be very easy. (Keep in mind that there is probably no doubt the president would sign the bill.) It's still possible this provision may die along the way. But anyone seeking to divorce in the foreseeable future should be aware of the possible changes to their financial situation.

For a more in-depth discussion of the proposed change, click here.

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