Michigan residents may do well to learn how the changes made by the Tax Cuts and Jobs Act of 2017 may affect them during a divorce. As reported by Kiplinger, the 2017 TC&JA eliminated some common tax deductions, including court-ordered alimony from divorce agreements finalized after Dec. 31, 2018.
There are no changes, however, to child support payments, which are not deductible on the payer’s income tax return. For child support recipients, the status also remains unchanged and the payments are not considered taxable income.
Ex-spouses receiving alimony or support payments
If you plan on receiving court-ordered alimony or spousal support payments from your ex-spouse, it is no longer necessary to report them as income on your tax return. This applies to divorce agreements reached after Dec. 31, 2018. Alimony payments established by a final settlement court order made in 2019 are no longer considered taxable income. This will not apply, however, to temporary agreements; only final settlements fall under the new rules. The new tax law classifies court-ordered support payments finalized Jan. 1, 2019, and later — whether for a child or an ex-spouse — as nontaxable income.
Individuals making alimony or spousal support payments
Under the new tax laws, alimony payments are no longer tax-deductible for those individuals making them. This change also applies only to divorce agreements finalized Jan. 1, 2019, or later. For those couples who finalized their divorce prior to 2019, they can choose to either maintain their pre-existing taxation criteria or move on to the new TC&JA rules.
Other options under the TC&JA rules
Alimony and property division payments receive similar treatment under the new TC&JA rules. Divorcing couples may wish to consider payment arrangements for a marital property division instead of an alimony agreement. These and other options made possible through the new TC&JA rules afford opportunities for some careful and forward-thinking planning to go into finalizing a divorce agreement. Overall, there is much to be gained by keeping things free of acrimony and working together toward a fair and equitable divorce arrangement.