How The New Tax Law Affects Alimony Cases In Florida
In terms of Florida divorce law, the new tax plan has big implications for lump sum alimony cases. Before 2019, family law attorneys had to caution dependent spouses that by accepting lump sum alimony, they could be brought into higher tax brackets. Since this would cause them to owe larger percentages of their income to the IRS, the net value of their alimony would be diminished. This concern no longer exists for the spouses who receive lump sum alimony. Instead, spouses who pay bulk alimony must now examine the tax implications. If it can be shown that awarding lump sum alimony would place financial hardship on a spouse, the court may grant periodic alimony instead an alimony lawyercan help you make such an argument. To learn which type of alimony is best for your case, call the Law Office of Silverman, Mack & Associates.
Work With Nevada Divorce Law Experts
Divorce or separation can change your life dramatically. Besides losing your spouse and sometimes children, you may have to spend the rest of your life paying alimony.
Divorce laws can be convoluted. If you are undergoing a marriage dissolution in Nevada, Willick Law Group can protect your interests.
How The New Law Will Affect You
The answer depends on whether you believe you are likely to be paying or receiving alimony.
If you are seriously considering separation or divorce and you believe you will have to pay alimony to your future ex, it may be in your best interest to contact a Florida family lawyer immediately and get the process going now, before the new law takes effect. As long as the separation or divorce is final before Dec. 31, 2018, your agreement will not be subject to the new law, and you will be able to keep more of your money.
However, if you believe that you will be the one getting alimony, it is in your financial best interests to wait until the new law goes into effect. Why? Because youll be able to keep all of your alimony completely tax-free.
Of course, you should keep in mind that more reforms could be introduced at the state level to counteract the big changes at the federal level. If you have questions, now is the time to ask. Schedule a free consultation today with a family law attorney.
Also Check: How Long Does Alimony Last In Florida
Can I Terminate Alimony Payments
The loss of the deduction is a blow to anyone who must now pay alimony and wasnt grandfathered into the deduction.
Your ability to terminate alimony payments depends on your divorce agreement and your state. Some states allow you to stop paying alimony when your supported ex-spouse cohabitates with a new partner. If your partner becomes financially self-sufficient, some states may allow you to end your agreement. Your alimony obligation almost always ends when your ex-spouse gets remarried.
If the alimony becomes too much without the deduction, you need to re-open your divorce settlement and negotiate an agreement that acknowledges the impact on your finances.
Alimony Rules Affect Tax Benefits
Before January 1, 2019, if a couple got divorced in Florida, the alimony was handled as follows. The recipient of the alimony paid tax on it. The payer of the alimony could deduct tax on it.
As a result, both parties got to benefit. The spouse paying the alimony got to lower their taxes, and the recipient of the alimony could pay tax at a lower rate by contributing the payments to an IRA. That is no longer the case.
If your divorce is finalized as from January 1, 2019, in Florida, and you have to pay alimony, it will not be tax-deductible. On the other hand, if you get alimony, you will not have to pay tax on it.
The change affects both parties negatively. The recipient of alimony can no longer treat alimony as income therefore, he/she cannot use it to make IRA payments. On the other hand, the spouse paying alimony can no longer deduct tax on it. It means divorces in Florida will end up costing both parties a lot more over their lifetime.
The good thing is once you are aware of the legal changes in alimony rules in Florida, you can mitigate your losses. The best way to do this is to negotiate divorce settlements wisely. Ideally, you and your spouse should agree to lower the total amount of alimony payments to reduce the tax burden on the payer.
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Is Lump Sum Alimony Taxable In Florida
A family law attorney can advise you on the tax liabilities associated with lump sum alimony. In most cases, alimony is treated as taxable income, whether its lump sum or periodic alimony. However, which spouse must claim alimony as income depends on whether the marital separation was before or after the new tax plan took effect on January 1, 2019.
Common Myths About Alimony
Many people think that alimony is a relic of a bygone time when husbands worked, and wives stayed home to care for the children and house with women in the workforce, surely alimony is no longer needed?
The truth is that, while alimony may look different than it did in the past, it is still common. How much alimony is awarded and how long it varies is based on the facts of each case . That said, receiving alimony is not a sure thing, as some other people believe.
One other common myth about alimony was, until recently, a fact. You might assume that someone who pays spousal support can deduct those payments on their income taxes, while a person who receives it has to count that support as taxable income. That was true for a long time. However, the federal Tax Cuts and Jobs Act changed that aspect of tax law. If you end up paying alimony, you can no longer deduct it from your taxable income. If you receive spousal support, you won’t need to pay taxes on it.
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Lump Sum Payment Of Alimony
In some cases, an award of alimony will be ordered to be paid on a monthly or periodic basis. Even if the alimony is set to terminate after a certain amount is to be paid, the paying spouse may be ordered to pay the amount over a period of several months. While this may work in cases in which the paying spouse has steady employment and income, there are certain circumstances under which the court may order a lump sum payment of the alimony instead.
Lump sum alimony, as its name suggests, is a one-time payment of alimony in the form of money or property. It is not a different form of alimony but is rather a way the court can order the payment of permanent or rehabilitative alimony when special circumstances exist that make periodic payments inappropriate. It cannot be modified and generally cannot be terminated, even if the paying ex-spouse dies or if the receiving ex-spouse remarries. For instance, if John is required to pay permanent alimony to Jane, but John has a gambling addiction or has expressed a desire to leave the country, the court may find that John is not likely to make periodic payments. The court may, therefore, order John to make one lump sum payment of alimony.
Thus, if parties are not careful, an award of alimony may have severe financial repercussions, especially for the ex-spouse receiving the lump sum alimony. Depending on the amount received, the receiving spouse can end up facing a large, if not debilitating, tax obligation.
Awarding Alimony Under Florida Law
Some factors affect the courts judgment when awarding alimony in Florida. The court will consider alimony if they deem it necessary. The ability to pay alimony is also a crucial element when deciding its validity.
If the court cant get enough relevant evidence to support a form of alimony payment, the court may deny the requesting party from receiving alimony from their ex-spouse.
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How The Irs Defines Alimony Payments
To qualify as alimony or separate maintenance, the payments you make to your former spouse must meet all six of these criteria:
Does The Length Of Marriage Affect Alimony
Permanent alimony or long durational alimony awards are usually reserved for long-term or moderate-term marriages. Generally, short-term marriages are only eligible for short-term forms of alimony. Under Florida law, a short-term marriage is a marriage lasting less than seven years. A moderate-term marriage is classified as a marriage lasting between 7 and 17 years. A marriage lasting longer than 17 years is considered a long-term marriage. See Fichtel v. Fichtel.
Also Check: Is Spousal Support The Same As Alimony
South Florida Family And Tax Law Attorneys
1Generally, property transferred between spouses during marriage or at the time of the divorce settlement does not result in the imposition of income taxes to either spouse. Of course, there are exceptions, such as alimony payments.
Depending on the parties marital settlement agreement, alimony is typically deducted by the paying spouse and taxed as income for the spouse receiving the alimony payments. However, the parties can specify in the marital settlement agreement that the alimony payments are non-deductible and non-taxable.
Alimony includes certain payments pursuant to a marital settlement agreement or by court order and does not include voluntary payments not made pursuant to such an instrument. The IRS has specifically defined divorce or separation instrument for the purposes of determining whether a payment qualifies as alimony. Child support is not alimony and is therefore not deductible by the payer. Our South Florida family law attorneys can assist you with ensuring that alimony payments meet IRS requirements to be deductible by the payer.
Our South Florida divorce attorneys are experienced and highly skilled lawyers who possess backgrounds in finance, accounting and tax law. Our attorneys have handled complex cases involving the division of substantial marital estates, comprised of the following: investment real estate, business interests, stocks, stock options, bonds, annuities, and pensions.
Basics Of Florida Spousal Support
There are five types of alimony in Florida:
- Alimony pendente lite this is temporary spousal support paid during the divorce process.
- Bridge the gap alimony designed to help a party bridge the gap between being a spouse and starting over as a single person. This type of support covers the costs necessary to start one’s new life.
- Rehabilitative alimony is intended to help a spouse receive the necessary education or training to become self-supporting.
- Durational alimony is awarded in the case of short- or moderate-term marriages. Support is granted for a period that must not exceed the duration of the marriage.
- Permanent alimony is awarded if the spouse in need of support is unlikely to be able to become self-supporting in such a way as to achieve the standard of living established during the marriage. Permanent alimony is usually awarded only in longer-term and some moderate-term marriages.
Regardless of the type of alimony or duration, the single most crucial factor determining whether spousal support will be awarded in Florida is the need for financial support by one spouse. Florida courts require that there be actual need to award alimony and also that the other party has the ability to pay support.
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Child Support Alimony And Taxes In Florida
Posted on January 15, 2016
Child support is not taxable in Florida as incomeâalimony on the other hand may have some tax benefits. The individual paying alimony in Florida may receive tax benefits for paying this alimony however the recipient does not and must report this money as income.
Be wary of the attorney that seeks to put a clause in a settlement agreement, which purports to circumvent the tax liability surrounding alimony. Also, if you are the recipient of alimony, do not be swayed by statements by another party which may lead you to believe that alimony does not have to be reported on your taxes. The last thing you want to deal with when you were dealing with a divorce, is tax fraud.
Every case is different, so you must be careful when looking at child support and alimony calculations in a divorce. Some attorneys may want to minimize the amount of alimony, while maximizing the amount of child support. If the case involves the husband paying alimony, the situation might be reversed â and his goal might be to pay more alimony and less child support.
The best way to get the most accurate information regarding possible tax liability and consequences, would of course be to speak with a tax attorney. Remember, most divorce attorneys will not give you tax advice, and will refer you to an accountant or a tax attorney. You may also want to review IRS Publication 504: Divorce or Separated Individuals.
How Length Of Marriage Affects Florida Alimony
The number of years you are married will determine what type of alimony the court will grant you and for how long. The length of marriage is calculated from the date your marriage was made legal to when the filing of divorce papers was approved. These lengths are all determined by the state of Florida.
Short-term marriageis a marriage that lasted less than 7 years. They are eligible for durational, bridge-the-gap and rehabilitative alimony. The court would have to make written findings of exceptional circumstances, such as the ones listed above, to be granted permanent alimony.
Moderate-term is a marriage that lasted between 7 and 17 years. These marriages are awarded the same options as a short-term marriage. Permanent alimony may be considered if there is convincing evidence of the need for it.
Long-term marriage is a marriage that lasted longer than 17 years. All types of alimony may be available, after the court has considered all of the alimony factors.
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General Tax Consequences Of Alimony
It should be mentioned that these consequences are different than for child support. In the case of child support, the parent paying child support cannot deduct the amount paid from his or her taxes. In the same way, the parent receiving child support does not include the child support he or she received as income.
If an ex-spouse is expecting to receive a certain amount of alimony in order to help support him- or herself, keeping tax consequences in mind is vital. Suppose Jane and John are divorcing. Throughout the marriage, John earned substantially more than Jane and now Jane is expecting to receive alimony from John in order to support herself. If Jane needs $2,000 in alimony to meet her monthly expenses, she will want to make sure that the actual amount of alimony she receives is more than $2,000 in order to account for the taxes she will have to pay on the alimony. Otherwise, Jane may find that the alimony she receives is not enough to meet her needs.
Divorce Adultery And Alimony Requests In Florida
Florida Statute 61.09 states that a paying spouse may be liable to pay alimony even if the couple is not divorced. The state doesnt recognize legal separation, unlike many states. However, alimony can still be pursued even if a couple is not legally divorced. The alimony under this statute supports the continuation of the marriage and provides a possibility of reconciliation in the future .
A married couple still has a legal duty to help each other financially. That means a court may still order spousal support even if the couple is separated. The amount of alimony should be appropriate to the standard of living that the receiving party enjoyed during the couples marriage .
For filing a divorce in Florida, the state law requires at least one of the spouses to be a state resident for six months before the divorce petition. However, when talking about durational alimony requirements, residency is not necessary .
The state of Florida is known as a no-fault divorce state. This means under the states divorce law, an individual doesnt need to provide or prove any reason, such as adultery, to facilitate a divorce. So, the act of cheating, for instance, will play a minor role in a permanent alimony request.
Also Check: New York State Council On Divorce Mediation
Divorces In 2019 Or Later
Under the new tax plan, spouses who pay lump sum alimony must now claim that money as income and pay taxes on it. Their dependent spouses, on the other hand, may deduct the alimony from their income reports. For example: if spouse A earned $60,000 but paid spouse B $15,000 in lump sum alimony, spouse A would owe taxes on $60,000 income, despite having a net income of just $45,000. Conversely, spouse B would pay taxes on $30,000 income but net $45,000. The new law, which impacts couples who divorce in 2019 or later, inverts the earlier arrangement: the tax burden is now on the payer rather than the recipient. An alimony attorney can help a couple modify or remove this tax treatment through a prior agreement in their divorce decree.
Why Its Important To Have The Right Attorney To Find What Is Taxable In Your Divorce Settlement
The above items are only a few of the tax issues that routinely come up with divorce settlements. For more complicated matters, we can help you find a tax specialist to advise you. Regardless, you need a family law attorney who is experienced with the basics of tax law as it applies to divorce. Your attorney should also be familiar with the changes that went into effect in 2019.
A knowledgeable Florida family law attorney can also help draft your divorce settlement in a way that best protects your rights and minimizes taxes. For example, if you are the spouse receiving alimony, its critical that the payments be clearly identified as such in your settlement. You also want to make sure that property transfers between you and your spouse satisfy the IRS rules for tax-free treatment. Plus, an attorney can explain how a QDRO works and makes sure it is drafted properly to avoid any tax penalty. Finally, your Florida family law attorney can explain the tax changes made with respect to qualifying kids.
Let Orlando Family Team Help With Your Divorce Settlement Tax Questions
Understanding these rules will not only help you anticipate your tax burden but will go far in ensuring you get the best agreement possible. If your spouse is requesting, for example, that you take action which will increase your taxes, we may be able to use that as leverage during negotiations.
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