New Tax Laws Impact on Alimony

New Tax Laws Impact on Alimony

February 15, 2018 7:31 pm

New Tax Laws Impact on Alimony Payments in Oklahoma is big. With the new tax laws going through in December of 2017, there are some material changes to divorce laws and Oklahoma alimony payments.  This is specifically seen in the laws regarding tax deductibility of alimony.  The Tax Cut and Jobs Act of 2017 eliminates the ability for a spouse who pays alimony to deduct the alimony amount from their taxable income.  So for instance, a spouse making $50,000 annually may pay $10,000 to his or her ex-spouse annually in alimony.

Previously, this could be deducted by the payer and act as a tool to reduce their taxable income.  As to the receiving spouse, under the old law, the payment is considered as income and taxed according to their income level. Under the new tax law the formula is turned on its ear. This is done by shifting who deducts the payment and who treats it as income. New Tax Laws Impact on Alimony Payments in Oklahoma require you to consider your tax liability differently.

Effect of New Tax Laws on Alimony

Now with the new laws, the situation above changes.  The spouse receiving alimony no longer has to pay tax on the alimony she receives.  It is not taxable income for the spouse receiving the payment. New Tax Laws Impact on Alimony However, the spouse paying the alimony no longer receives the deduction, so he or she is paying the full $10,000.  He or She will likely file for a modification of alimony stating that he can really only afford the $5,000 he actually paid after taxes under the previous system.  As a result, the woman will no longer receive a full $7,500 after taxes.  Instead, she will receive only $5,000 overall.  This is a $2,500 decrease in total payment.  As many people in lower income brackets know, $2,500 is a significant decrease in income.

Read This Article About Dividing Debt in an Oklahoma Divorce

Other Potential Changes to Alimony

Other effects that attorneys expect to see include a chilling effect on mediation, a move toward more court battles during divorces, and in some cases less divorce but increased spousal abuse and adultery rates.  This is all a response to the loss of the alimony tax deduction for the payer.  If a couple cannot afford a divorce, they are more likely to stay together for financial reasons.  This may result in increasing marital tension and higher abuse rates.  Further, without the ability to deduct alimony from income, more divorcing couples will be less inclined to work out a mediation agreement.  Without meditation, court battles will ensue and may lengthen the divorce process.

Alimony Modifications in Oklahoma

It is important to make some mental notes about alimony modifications in Oklahoma.  First, these can only occur in the state that issues the original alimony order.  So, if you get divorced in Tulsa, but move to New York then you will have to apply for a modification in the Tulsa County District Court.  Second, it is still unclear whether the new laws will apply to alimony settlements that occur before the December 31, 2018 deadline.  It is best to ask an attorney and work through the intricate details of your specific case with them.