As if divorce settlements weren’t contentious enough, the new Republican tax plan will make proceedings even more bitter and hurt women in alimony negotiations.
When the Tax Cuts and Jobs Act takes effect in 2019, it will put an end to a 76-year-old tax deduction on alimony payments for divorcees. The elimination of this deduction, which was added to the code in 1942, is leading several high-earning spouses to rush their settlements and wrap them up as soon as possible in order to maintain the tax deductions. On the other hand, those whom are dependent on their spouse’s income may wish to push their settlements into 2019 to avoid paying taxes on their alimony payments.
With the deductions in place, an individual who is the breadwinner of a relationship and falls in the highest earning tax bracket, would be paying roughly 60 cents to every dollar per alimony payment. This is a serious incentive for higher earning spouses to push their divorces before the new year to avoid nearly doubling their average payment. The consequences of these changes could potentially be monumental in that it will pit spouses against each other throughout a process that already has them at each other’s throats. It is essentially taking a toll on everyone involved because it puts spouses in a position that makes it extremely difficult to agree on which direction should be taken in their divorce.
There is a large chance that these changes could also cause great harm to the livelihood of female divorcees. Females are at greater risk because they statistically often earn less than men and without the deductions on alimony payments, breadwinners will likely not be willing to pay nearly as much as they would with the deductions in place, ultimately leaving women in financially precarious situations to say the least.
“The repeal reduces the bargaining power of vulnerable spouses, mostly women, in achieving financial stability after a divorce,” Brian Vertz, a family law attorney in Pittsburgh, tells Politico.
With the deductions, a person who has to pay $4,000 will likely only end up paying around $3,000. Without the deduction, people are going to be far more inclined to choose to pay what they would have after the tax deduction, aka the $3,000 rather than $4,000.
“It’s a financial hit for both the payer and the recipient in the sense that it may discourage many payers from agreeing to pay alimony,” says Vertz to NBCNews.com.
Not only will the removal of deductions slow down the divorce process and potentially decrease the chances for females to receive fair payments, but it also has the potential to discourage individuals from making the decision to get divorced in the first place. This could impact the views of unhappy couples that they are better off being married and not getting along than attempting to go through with a divorce that they know will put them at complete odds with one another.
Many divorce lawyers throughout the United States see the end to these deduction as a catalyst in making divorces far less amicable than they already are. Others believe that it could even be detrimental to their profession as a whole, seeing as lawyers gain a great deal of their business through word of mouth recommendations and these settlements could end up leaving all parties disappointed and angry.
The total amount that that is projected to be raised through this move is roughly $6.9 billion throughout the next ten years. This near-$7 billion raise is thought to be the Republicans’ way of paying the expense of their tax rewrite.