Since 1942, paying alimony was deductible and constituted taxable earned income for the spouse receiving it. This deduction and tax ends in 2019.
Beginning January 1, paying spouses cannot deduct this support and recipient spouses will not have to report it as income. This may play a role in expediting settlements so paying spouses can continue to claim this deduction or slowing them down so recipients can avoid taxes.
This can also impact the validity of prenuptial or matrimonial agreements in Louisiana. Language was often inserted in these agreements that calculated spousal support on the length of the marriage and indicated that support was deductible.
Terms of these prenups governing deductible may no longer be enforceable. Couples may consider renegotiating these agreements before 2019 and look for any guidance from the IRS.
Child support will remain nondeductible but other assets may be affected. For example, spouses who have child custody usually kept the couple's home.
Now, however, homes may be less valuable because deductions for higher state and local taxes are now limited. A spouse may now want to consider trading the home for an asset such as a retirement account to avoid paying property taxes.
The new law may also change the calculus of paying for the children's education. Now, 529 college savings plans can pay for private schools. These were restricted to postsecondary and college education before the law changed. Using these funds for private schools may leave them depleted when the child is ready for college.
Valuation of businesses was a hotly-contested issue and played a large role in negotiations. The new law raises the transmission of cash in some pass-through entities where the owner pays taxes. This increases their value and may call for a closer review by a valuation expert.
Legal assistance can help a spouse plan for these changes. An attorney may fight for their rights in negotiations and mediations and help assure that the decree is fair and reasonable.