In the state of Massachusetts, alimony payments are known for being 30% to 35% of the gap in income between MA spouses. This means that if one spouse is making $30,000 a year and the other is making $60,000 a year, there could be $10,500 a year going from one spouse to the other. This is a lot of money for a divorcee to pay in alimony, but the saving grace of the situation was that the $10,500 payment earned the alimony payer a tax break. However, a provisional GOP tax bill could drastically change the system currently in place.
The portion of the “Tax Cuts and Jobs Act” specifically dealing with alimony (section 1309) will no longer give those paying alimony a matched tax deduction. Currently, those who pay alimony receive a dollar for dollar tax break that takes the edge off of paying a spouse a percentage of earned income. So the $10,500 that the alimony payer gives to their spouse? It is taken directly off of the alimony payer’s taxable income. However, if section 1309 is passed into law, alimony payers will no longer have tax breaks for their alimony payments. This means the $10,500 handed to an alimony recipient will hit the payer extra hard. Not only will the alimony financier have to pay the alimony amount ($10,500 for this example), they will also incur income taxes on that amount. Using the $10,500 amount, Massachusetts state income tax would require $535 and the federal government would ask for around $2,500 in federal income tax. This means that a current $10,500 a year alimony order in Massachusetts will end up costing the alimony payer closer to $13,535 under section 1309. This is a substantial difference in financial burdens placed on divorced couples.
This bill will also affect divorcees who receive alimony payments. Currently, the alimony payee must pay income taxes on the alimony they receive. Under this new tax bill, the payee will no longer have to pay income taxes on the alimony they are given from their former partner. The payee will be completely free of tax fees regarding alimony payments. This means that under the new bill, the Massachusetts alimony payee will be awarded the $10,500 from the payer and the money will be entirely the payee’s to use without any deductions.
At this point, alimony and marriage payments have a typical standard. Family law attorneys, courts, state divorce laws, and judges are all on a similar pages concerning divorce and alimony cases. If this bill were to pass, the current system would have to acclimate to this new law. Under this new bill, alimony payers are clearly at a monetary disadvantage. From a strictly legal standpoint, the average divorce with no “abnormal circumstances” is supposed to grant a close to “perfect compromise” between the two parties. However, a compromise will be much more difficult to reach when alimony payers are taking the brunt of income losses. In future divorces, the fact that alimony payers will be responsible for the income tax may give payers a bargaining chip for other aspects of the divorce.
While hiring an alimony attorney is always a wise choice for divorcees, this bill will likely encourage more alimony payers to hire attorneys. The goal of a qualified alimony lawyer is to obtain a compromise for his or her client that is deemed fair based on the law and extenuating circumstances of a divorce. However, this bill seems “unfair” for alimony payers since they are paying taxes on income that they never get to use. For future alimony situations, the goal of a compromise will already have been thwarted by section 1309. So, if this bill does pass, it is expected that alimony payers will be seeking help from family law attorneys against section 1309.
If your alimony payments seem unfair based on your given circumstances, contact us for a free consultation. Our family law attorneys will go over your case with you so that you are informed of your legal options. We believe that all divorcees have rights that need to be upheld in the court of law, and we could fight for yours today!
Call (508) 502-7002 to speak to one our alimony attorneys now.