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Spousal support to undergo tax change

Dividing assets and debts when getting divorced can be one of the hardest parts of coming to an agreement during a divorce for couples in Pennsylvania. This is in part related to how hard it can be to part with hard-earned assets but it may also be challenging as the decisions made may have serious tax implications for one or both parties. When it comes to evaluating the possibility of one person making spousal support payments to the other, these tax implications are about to change dramatically.

As explained by the Internal Revenue Service, under the current tax law, a person who receives alimony payments must claim the money as income on their tax return and then pay federal income tax on that money. The person who makes alimony payments is able to deduct the money paid from their taxable income.

If money from a 401K account is used to make these payments pursuant to a qualified domestic relations order, this tax structure remains in place. If the receiving spouse moves the money into a different retirement fund, they may be able to avoid taxes at the time of receipt.

For people who finalize divorce agreements in 2018, MarketWatch indicates the current taxation model will be followed. However, for any agreement signed or modified after January 1, 2019, the tax responsibility between spouses will essentially reverse. The recipient spouse will no longer pay tax on the income although they will not deduct the amount from their taxes. The paying spouse will not only fork over the money but pay income tax on it as well.