Is the tax reform the final straw for upkeep?

(This November 9 version of the story removes the certified financial planner from Armstrong’s references in paragraph 17. He is not a registered CFP.)

FILE PHOTO – A woman poses for a photo at sunset on the beach along the Volga in Samara, Russia, July 18, 2017. REUTERS / David Mdzinarishvili

NEW YORK (Reuters) – No sooner had the House of Representatives bill hit the news than divorce attorney Malcolm Taub’s phone began buzzing.

The maintenance tax deduction was on the cutting pad, eliminating the interruption for the spouse paying the maintenance and the tax burden for the one receiving it.

Since it is impossible to know if the determination will go through the full process or when it will be implemented, Taub said he will try to get his pending cases closed before the end of the year to be sure.

“That deduction is an important, important factor in negotiating a settlement and in relation to what a judge will give. That will change the landscape dramatically, ”said Taub.

While alimony payments are statistically rarer, Taub still plays a role in most of the divorces he works on in his New York practice, according to Taub. Many of his cases involve long-term marriages and high-income couples where a spouse – usually the wife – stayed home to raise children.

According to IRS statistics, around 12 million tax returns were withdrawn for the payment of alimony in 2015.

One problem that the House proposal seeks to solve is that the number of dependents claiming this as income is far fewer – 10 million. The dollar amounts reported do not match either.

However, experts said it was not clear that the House of Representatives tax reform proposal would generate more revenue. Instead, it could cut maintenance costs and lower the amounts paid.

“Payers will be less likely to agree to alimony because they will not get the tax break they received before, and judges will also consider the tax implications and I believe they will order less alimony,” said Mary Kay Kisthardt. Professor of Marriage Law at the University of Missouri-Kansas City School of Law.


In one of the pending lawsuits for Chris Chen as a Certified Divorce Financial Analyst in Massachusetts, the husband is negotiating an annual payment of $ 60,000 to his ex-wife. He would currently be able to deduct that amount from his taxable income so his real cost is only $ 40,000.

The spouse would tax that $ 60,000 as income, but at a lower income bracket, meaning she owes $ 15,000 to the IRS and keeps $ 45,000.

If the proposed tax reform is implemented, the husband would not be able to withdraw alimony, which would cost him an additional $ 20,000. The woman would get the whole $ 60,000 to spend.

But that wouldn’t necessarily be the case in real life. The paying spouse would be reluctant to pay out that much while the receiving spouse would negotiate to hold their own, adding to the tense negotiations.

“There isn’t a person out there with child support who says they are rich enough to afford an additional $ 20,000,” said Chen.

Taub just settled a similar case where the husband was paying $ 12,000 a month, but it cost him $ 6,000 net. The woman received $ 8,500 after taxes.

If he negotiated the deal after the tax reform, Taub said, “I would tell the husband not to pay more than $ 6,000,” although that meant the wife would get $ 2,500 less a month.

Connecticut-based tax advisor Morris Armstrong said it would be more efficient for the IRS to simply enforce existing tax laws.

“If the IRS was better funded and able to do its job, we may not need tax reform,” he said.

If a divorced couple files mismatched tax returns, they might get a letter, said John Dundon, a registered agent with a Colorado tax practice.

“The IRS will say we are changing your assessment to make it agree with the other, or they will ask them to explain why the amounts are inconsistent,” Dundon said.

For Taub, the solution to the problem is to call this disparity what it is: one side lies.

“It’s called tax evasion,” he said. “If the IRS wanted to get this through … there would likely be more money to be made that way.”

Editing by Bernadette Baum

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