“Reality is, it doesn’t necessarily dissuade anyone from getting a divorce but does mean both sides could be worse off,” said Justin Miller, national wealth strategist at BNY Mellon Wealth Management.
Tax breaks like the alimony and mortgage-interest deduction (which, by the way, is also being limited by the House bill) are critical to many divorced families trying to make ends meet, says Manhattan divorce lawyer Michael Stutman.
New York Couples
“Particularly in New York, you have a lot of couples who are barely keeping one house together with their income and now they’ve got to do two,” he said. “It is such a devastating economic event for most families.”
Eliminating tax benefits could “cost them another $4,000 or $5,000 a year,” Stutman said.
Of course, the bill only applies to couples who divorce after 2017 and alimony recipients would no longer need to report the benefit as taxable income.
Yet as with all tax bills, almost everything is up for negotiation. Kevin Brady, the chief House Republican tax writer, has already said more revisions may be coming. Republican Senator John Cornyn of Texas said the chamber’s tax-writing committee wouldn’t be using the House bill as a starting point.
“It’s a long, long road,” said BNY Mellon’s Miller. It’s “more likely a negotiating position. For now, we’re telling people not to panic.”
Still, any change could also have lasting consequences for child support, which is often calculated in tandem with alimony.
In some states, laws and guidelines for alimony are premised upon the fact that they’re tax deductible. States also vary widely in how they treat alimony. In Massachusetts, alimony can reach 30 to 35 percent of the gap in income between the spouses. In Indiana, spousal support is only granted when one party is disabled and can’t work.