When the media first reported changes to the spousal support system, people panicked. Divorcees who were already receiving alimony worried that the new system would create problems for their existing spousal support order. No longer claiming the money as taxable income sure had its benefits, but you likely realized your ex might feel less inclined to pay money they have to include in their own taxable income at a higher tax bracket. The good news is that unless you intend to make changes to your support order, it remains as is.
For those who finalized their divorce after December 31, 2018, the new tax laws apply. CNBC points out that the difference in tax brackets is one of the main problems divorcees encounter. In the past, divorced households paid less money in taxes when the payee claimed the money as taxable income at a lower tax bracket.
Say, for instance, that the payee made only enough income to get taxed at a rate of 15%. If they received $3,000 per month, they pay only about $450 in taxes. The payer is typically in a much higher tax bracket, so assume a rate of 33% on that monthly $3,000. The payer now needs to pay roughly $1000 in taxes on that $3,000 every month.
No matter how wealthy the payer is, they have a limited amount of money to share. Because of this, even if they do not put up much of a fight against you in court, the court itself may take into consideration that this person has to pay money to their spouse and pay taxes on that money they lose access to. This might cause payees to receive less money over time.
When children are in the mix, this can be especially devastating. Children often stay with the dependent parent, as they typically become dependent to care for these children. Even though the spouse may also pay child support, the children experience a lower standard of living than they were originally accustomed to if you are getting less money.
The good news is that many couples have found ways around this problem my dividing up other long-term assets. These act as a much safer cushion than relying only on alimony and child support payments while getting back on your feet.