You may be aware that Congress recently changed the tax code when it comes to alimony. These changes apply to all divorce and separate maintenance agreements or orders entered after January 1, 2019, including Georgia divorces. If you pay alimony, you can no longer deduct it from your taxable income for tax purposes. In addition, recipients of alimony do not have to include alimony payments as taxable income. It is critical that you are aware of these changes when negotiating your divorce or separate maintenance actions. As you can imagine, these changes will have major implications on your budget—and that of your spouse.
Under the new rules, if you are receiving alimony, be aware that your spouse may be reluctant to pay as much alimony as some of your friends receive who were divorced before January 1, 2019. Be mindful of this and look to other parts of the marital estate to extract equity—such as retirement accounts, savings accounts, or real estate. It will be important to invest the assets you receive in the divorce settlement wisely so that you can ensure that your cash flow needs are met with sources other than alimony.
If you are paying alimony, you can no longer take advantage of the tax deduction for alimony payments. Therefore, negotiating more aggressively on alimony payments and looking for other areas of the marital estate to satisfy the needs of your spouse is worth exploring with your attorney. If you are paying both child support and alimony, this could severely restrict your cash flow. It may be more beneficial if you pay your spouse with a greater portion of the retirement assets or equity in the home. This would help by reducing the amount of alimony you are paying on a monthly basis to free up monthly cash flow.
Remember, these new rules do not affect divorces or separate maintenance agreements that were finalized before January 1, 2019. The old rules, described below, will still apply to those agreements.
For tax purposes, the old rules state that alimony in divorce or separate maintenance agreements reached before January 1, 2019, should be included as taxable income to the recipient and deducted from the taxable income of the paying spouse. If you’re curious, IRS Code Sections 71 and 215 are the areas that govern the tax implications of alimony before January 1, 2019.
The old rules state that for alimony to be taxable to the recipient and deductible to the person paying it, it must meet the seven requirements of Code Section 71. To summarize those requirements:
When preparing to file your taxes during or after a Georgia divorce, you need qualified experts to assist you. The Marietta family law attorneys at Bivek Brubaker & Prescott LLC have years of experience dealing with all types of Georgia divorce cases. We would be happy to speak with you to answer any questions you have about your divorce. In addition, it is always best to consult with a CPA about alimony before filing your tax return. You can contact us or call 404-793-6530 to speak with one of our highly qualified Georgia divorce attorneys.