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Tax treatment of alimony to change

On Behalf of | Aug 22, 2018 | Divorce |

The rules governing taxation of alimony payments are set to change in 2019. Some of the biggest consequences of the new tax rules have to do with who pays taxes on the alimony. For people who are approaching or going through divorce in Missouri, it’s important to be aware of the ramifications. The law will apply to divorce agreements that are entered into after New Year’s Day 2019.

People who entered into divorce agreements including alimony or spousal support payments prior to the change will continue to apply the current tax rules going forward. The law that is being replaced allows the paying spouse to claim a deduction for alimony payments and requires the recipient to pay taxes on the money. Under the new rule, the person who pays alimony cannot deduct it, and the recipient doesn’t owe taxes on alimony received.

After the rule changes, it may make sense in some cases to make payments via an IRA or other retirement account. Alimony payments under the current rules must be made in cash to be deductible. However, retirement funds transfers will be available under the new rules. A person could make an alimony payment, for example, using IRA money that would have been taxable had he or she withdrawn it.

The recipient spouse would then have to pay taxes on the funds when he or she withdraws them. Individuals in Missouri who have questions about the rules changes might want to speak with a lawyer. A lawyer with experience in divorce law might examine the facts of the case to determine whether and how the tax laws impact a particular divorce. A lawyer may help negotiate property settlement with the other spouse or argue on the client’s behalf during child custody proceedings. In some cases, a lawyer may be able act as a mediator for the parties.

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