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Alimony, taxes and the rush to divorce

As soon as the turkey leftovers are put away, many people in Maryland turn their attention to their Black Friday shopping trips. This year, however, instead of hopping in their cars and rushing to the malls, some people might be rushing to get their divorces completed before the calendar turns to 2019.

In a recent report, Bloomberg explains that 2018 may see a big reversal in what is normal for divorcing couples. Typically, the holiday season is when people either hold off on divorce conversations to get through the holidays with less family drama or even try one last effort to save their marriages from divorce. This year, however, pushing to finalize a divorce may well be more likely.

The reason for this is a change in the tax law that will take effect on New Year’s Day. For any divorce completed after January 1, 2019, income tax on spousal support payments becomes the responsibility of the person who pays the alimony. This person is likely to be in a higher tax bracket than the recipient which may well be why the government enacted this change so that more tax revenue could be generated.

What may actually happen, however, is that more divorces might be completed in 2018 so the current law remains in effect. This would keep the tax liability with the recipient who may pay less tax overall since they may be in a lower tax bracket. This would also give the paying spouse the ability to deduct all payments from their tax return.