Legal Update: Major Alimony Change

As part of the tax overhaul passed last year, a major change is coming to alimony. Effective January 1, 2019, alimony in all newly granted divorces will be taxable to the paying party, rather than the receiving party. Historically, qualifying alimony payments have been tax deductible for the payor and taxable income to the recipient - treating the alimony payments, in essence, as though that money had been the income of the receiving party.

The change means that the total available income between the parties will be reduced, as the alimony will be taxed at the rate applicable to the payor, which will almost always be higher - often twice the rate that would apply to the recipient.

The change is also important to understand when structuring divorce settlements going forward - ignoring this could cost the paying party thousands of dollars more than they expect, and could make alternative arrangements, such as transfers as a division of marital property, more attractive as a means of dividing assets and income.