What is Hidden in the New Tax Proposal That Could Change Divorce?
Deep in the 429 pages of the House Republican tax bill is a provision with financial consequences for couples getting divorced.
People looking to get divorced and people writing alimony checks would have to pay tax on those payments. Under current tax law alimony payments are tax deductible to the party paying, and taxable to the party receiving them. Under the new proposal that would end.
Here is the rationale for making these changes: The proposal would eliminate what is effectively a divorce subsidy under current law. Divorced couples can often get a better tax result for payments between them than a married couple can.
Congressional tax writers said the new formula would increase the total amount of tax paid by divorced couples, since the ex-spouse who pays alimony is typically the one with the higher income and in a higher tax bracket. They say the change could generate an extra $8.3 billion for the government over a decade.
Other changes include doing away with the dependent exemption and increasing the standard deduction.
The bigger question is, how many items in the proposal will change — and will we have a new tax bill in 2018?
We will need to wait and see.