Taxes are pervasive in every field of law and family law is no exception. Tax laws play key roles in shaping how family law attorneys tackle property division, child support, spousal support, retirement plans, and other issues. Recently, Congress proposed a new tax plan that will change the way many families calculate their taxes. In particular, one proposal will have a large impact on how divorced couples will be taxed on spousal support payments.
Under our current tax laws, spousal support is deductible for the paying spouse, and taxable income of the receiving spouse. The proposed plan would flip this, causing the paying spouse to pay spousal support in their after-tax income and allowing the receiving spouse to earn spousal support tax-free. Essentially, this change would further increase the burden on the paying spouse and alleviate the tax bill for the receiving spouse.
However, it's not quite that simple to say that paying spouses will suffer the most under this new tax law. It is possible that courts would order lower spousal support payments, knowing the changed tax consequences. Nonetheless, the new proposed tax plan will have an effect on divorcing couples. We will just have to wait and see what those effects will be.
Maria E. Crabtree, CFLS