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How Changes to the Tax Laws are Affecting Alimony



How Changes to the Tax Laws are Affecting Alimony

DATE: October 24, 2018
Category: Divorce
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Alimony is one of those issues on which people tend to take sides when brought up in mixed company. Many people assume that those seeking spousal support after divorce are lazy and unwilling to find employment, rather than in genuine need of financial assistance. Spousal support is not part of the property division award, and must be separately requested in the divorce petition if the couple cannot agree on a private settlement. Obviously, the person asked to pay support is concerned that the additional expense will be too much of a financial strain (despite depictions in the media of spousal support being only for the wealthy, many middle-income couples face this consideration in divorce). This concern can make the payor spouse hesitant to agree to any deal on spousal support, as this assistance is up to the discretion of the judge and far from guaranteed. Certain provisions of the federal income tax code were written to take some of the financial sting out of spousal support awards, but these provisions will be eliminated starting in 2019, so spouses even considering asking for divorce and anticipating the need for spousal support should take action this year to better protect their interests. A discussion of the current treatment of alimony under the tax code, and how the elimination of this feature will impact divorce, as well as a brief overview of spousal support awards in Michigan, will follow below.

Changes to the Federal Tax Code

Until the end of this year, a former spouse that pays spousal support is entitled to take a deduction, and the party receiving support is required to report the money as income. This provision has existed since 1942. By allowing the payor to take a deduction, the financial hit of the additional expense is reduced, and essentially acts as subsidy for the paying spouse that lowers his or her overall tax burden. Under the new tax code reform that Congress passed last year, and set to go into effect at the end of 2018, the ability to take a deduction and the requirement to report the spousal support as income are both eliminated. This change takes away any incentive a payor would have to agree to spousal support away, and will make any divorce involving this support element much more complex to negotiate, settle, or litigate. Women, comprising 98% of former spouses receiving support, which reflects the fact that women are still often the parent who stops working to raise children, will be negatively affected by this change. Consequently, as urged above, if spousal support is part of a possible divorce plan, it is best to enter into an agreement before 2019 comes, and avoid the damaging impact this elimination is sure to create.

Spousal Support in Michigan

Turning to a general discussion of spousal support in Michigan there is no set formula for determining when spousal support is appropriate, or how much or long this assistance should be provided. Spouses are always free to agree on this issue as part of a divorce settlement or through a pre- or post- nuptial agreement. If agreement is not possible, the court will look at 11 factors to evaluate whether spousal support is appropriate, such as age, health, ability to work, length of the marriage, and the ability to pay. If awarded, it may be ordered as a lump sum or through periodic payments. The award may be temporary (rehabilitative) or permanent (principally reserved for long-term marriages with spouses of 60 or older). Spousal support is modifiable unless the parties agree otherwise, assuming a significant change in circumstances occurred. Though, lump sum awards require special circumstances to change.

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2000 Town Center Suite 1625
Southfield, MI 48075

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Suite 1625
Southfield, MI 48075

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