Will the Alimony Tax Change Pressure Couples to Finalize their Divorce in 2018?

As we have previously covered here, The Tax Cuts & Jobs Act of 2017 Includes a Divorce “Penalty” for divorces that take place after December 31, 2018 if they involve alimony. Prior to this act, and up until December 31, 2018, alimony was tax deductible to the payor and taxable income to the recipient, which allowed for a shifting of taxable income to a lower tax bracket. If an agreement is entered prior to the end of 2018, and this benefit is preserved, then it continues into future years, even if the amount is later modified. This has led many couples, already in the divorce process, to consider whether they want to work on finalizing their case prior to the end of 2018 to preserve this option.

Because some states, like Massachusetts, have waiting periods for finalizing a divorce, this law change raised a question:

Does the deadline of December 31, 2018 apply to the divorce being finalized, or just having a written agreement completed?

The answer to this question in Massachusetts, which has a 90-120 day waiting period for the finalization of a divorce after the Judgment of Divorce Nisi, could mean the difference between having to have an agreement done in August rather than December. For more information about the timing of the divorce process in Massachusetts read our post: How to be Divorced by the End of the Year.

According to a recent post from local CPA firm, Gosule, Butkus & Jesson, LLP,

"The key for parties getting divorced in 2018 who want alimony to be deductible to the payer and taxable to the recipient is to have a written, signed, alimony agreement in place by December 31, 2018."

They note that the couple does not have to actually be legally separated or divorced for the alimony to be deductible as long as there is a "written separation agreement" with clear statements for support that otherwise meet the requirements for deductible alimony. To read their entire rationale for this conclusion, complete with tax court citations, read their full article here: What Constitutes an Alimony Agreement?

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