When President Trump signed into effect “The Tax Cuts and Jobs Act”, it made a tremendous impact on Florida Family Law Dissolution of Marriage that are both positive and negative. On January 1, 2019, one portion of “The Tax Cuts and Jobs Act” went into effect which has a significant impact on how alimony payments are treated under the United States Tax Code. Due to this change in the tax law, spouses who are court ordered in a Final Judgment of Dissolution of Marriage to pay alimony (or spousal support) will no longer be able to take a tax deduction while the spouse who receives alimony will no longer have to report it as income. Prior to January 1, 2019, unless otherwise specifically designated, alimony was taxable to the recipient and deductible for tax purposes by the payor. Our Florida Supreme Court Certified Mediators at Mediation of Coral Springs, Inc. have already been seeing how this change to the Tax Code can impact a mediation.
The Internal Revenue Service had allowed an alimony deduction on our client’s federal tax return since 1942. The Internal Revenue Service says at least 600,000 taxpayers currently claim alimony as deductions. Under the prior tax law, the higher-earning spouse could significantly lower his or her tax burden while the lower-earning spouse could pay taxes at a lower rate by contributing some of his or her alimony payments to an IRA.
While this may seem like this change is one-sided against the payor, it can have a negative impact to both parties. Previously, recipients were able to make contributions to an IRA from their spousal support payments, but these contributions are no longer allowed since these support payments are no longer viewed as income.
Based on the following language of this change to the Tax Code there are other possible consequences that may be out there:
“(c) Effective Date – The amendments made by this section shall apply to—
(1) any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act) executed after December 31, 2018, and
(2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification.”
Further the Tax Code defines divorce or separation agreement as:
“(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree,
(B) a written separation agreement, or
(C) a decree (not described in subparagraph (A)) requiring a spouse to make payments for the support or maintenance of the other spouse.”
One looming problem is that Florida does not have a statutory definition of a “separation instrument” which means how will Florida courts will have to deal with issues that will revolve around prenuptial agreements and postnuptial agreements.
Our Florida Supreme Court Certified Mediators at Mediation of Coral Springs, Inc. clearly recognize that there are significant issues that “The Tax Cuts and Jobs Act” have caused with respect to spousal support.