The end of the deductibility for Indiana spousal support payments ends on the stroke of midnight this New Year's Eve. This change to the tax law sparked a rush to the courthouse and changes in family law planning for couples.
As part of the widespread changes to the federal tax law passed in 2017, Congress ended the long-standing deductibility for spousal support starting on Jan. 1. This will also eliminate the requirement that recipient spouses report these payments as ordinary income. Child support will not, as in the past, be deductible to the payer or taxable to the recipient.
Spousal support was typically more prevalent for long-term marriages, such as those lasting at least 15 years. It also was used more where there was high income disparity between the spouses or where a spouse had trouble supporting themselves because of reasons such as health.
This deduction was beneficial for high-income spouses. For families, it also had financial advantages because money was paid in support to lower-taxed spouses which is now being paid to the federal government. Spousal support was often an incentive to settle divorce cases.
Many couples tried to finalize their divorces before the end of 2018 because the new tax rules do not effect decrees or settlements entered before the end of the year. There was also an incentive for some spouses to delay settlement until 2019 when spousal support is not taxable or will push them into a higher income bracket.
The new tax law will change the way cases are resolved in 2019. Previously, tax treatment paid a role in how support payments were calculated. It is anticipated that the loss of the deduction will help determine the payment amounts because the cost of alimony will rise in 2019.
Spousal support, however, is only one of the family legal issues that must be seriously negotiated such as property division, child custody and support. An attorney can assist a spouse is seeking a decree that is reasonable and protects their interests.