The new federal tax law approved last year has presented uncertainty in Louisiana and across the country. This change has even gone so far as to affect divorce planning.
Before the new law, the payer of spousal support could deduct the full amount while recipients of spousal support paid taxes on it at a rate of 15 percent. To recapture some loss revenue from other changes, however, the new tax law eliminates the long-standing deduction for alimony payments.
In addition to eliminating the deduction for paying alimony, recipients will no longer have to pay taxes. The federal government will receive more of the spouses' combined money. Delaying these changes until 2019, however, may cause additional problems.
Because the deduction will remain for another year, alimony-paying spouses may try to expedite their divorce, so they can receive a deduction. Spouses receiving support may attempt to delay a settlement to avoid taxes.
Loss of this deduction can cause a financial burden and can make settlement negotiations more difficult and stressful. Basing settlement on the calendar adds to these problems. The six-month waiting period for a no-fault divorce in Louisiana even further complicates settlement.
Formulas and long-standing reasoning used for awarding alimony amounts will likely change. Judges and parties in divorce negotiations took tax deductions into consideration while calculating support. Like parties considering the law's impact on deductions or tax liability, parties may also try to expedite or delay proceeding to gain an advantage on calculating the amount of payments.
An attorney may help a spouse review their options. They can also help protect a spouse's interests in negotiation and litigation.
Source: Yahoo! Finance, "Trump's tax bill will make 2018 a wild year for divorce," Ethan Wolff-Mann, Jan. 10, 2018