Some Connecticut spouses have been pushed to escalate their divorce timelines due to changes in tax law that are scheduled to go into effect with the new year in 2019. The Tax Cuts and Jobs Act, passed in December 2017, includes changes to the way that spousal support is treated when it comes to taxation. Divorce is always costly, especially for high-income families. When one spouse significantly outearns the other, spousal support is common at least for the period immediately following the separation. This is especially true in a long-term marriage or when one partner has been a stay-at-home parent.
For decades, spousal support has been tax deductible for the payer and taxable, like other income, for the recipient. For the divorced couple, this leads to an overall tax savings as taxes are paid at the lower-earning person's rate. The deduction can also be significant, depending on the amount paid each year. As a result of this tax system, payers have had an incentive to agree to generous spousal support provisions as part of divorce negotiations.
This will change for divorces finalized after Dec. 31, 2019. Because it will remain the same for those who have already completed their divorces, many are rushing to finalize before the turn of the year. For others, alimony will now be taxable by the payer and the recipient will take the income tax-free. While this appears favorable to recipients, it is likely to lead to an overall decrease in the amount of support paid.
A spouse who is thinking about divorce may want to look closely at how ending their marriage will affect their finances. A family law attorney can work to protect a client's assets, advise about the financial effects of a dissolution and seek a fair agreement on all matters, including property division and spousal support.