North Carolina residents that are considering divorce and might need to negotiate alimony might be affected by a proposed change in the law that could affect payment amounts. The changes relate to the provision that allows those who pay alimony to claim the amount as a deduction while the receivers must include it as income.
The proposed change is part of the larger Tax Cuts and Jobs Act, which seeks to eliminate a number of tax breaks. Experts say that the change will mostly affect the payees, who will probably receive less alimony since a greater share will need to be paid in taxes. As a result, the amount available to support two households will decrease.
Alimony is usually granted in cases where one spouse earns significantly less than the other in a long-term marriage. However, if the change does take place, alimony agreements entered into after 2017 could be much lower than in previous years because the elimination of the deduction would result in alimony costing the payer more than in the past. The reason for this is that under current law, the payee is the one paying taxes on the money, and he or she is usually in a lower tax bracket than the payer. The reason for the change is due to the IRS’s concern with a discrepancy between what payers claimed as deductions and payee’s listed as income, which, in 2010, translated to a $2.3 billion difference.
Those who are preparing to negotiate a divorce settlement might opt for the guidance a lawyer with experience this area can provide. An attorney could explain the current law as well as any upcoming changes that might affect the negotiations of the settlement and the amount of alimony. A lawyer also can offer advice about the options available to his or her client.