Authored By: Christopher Pearsall, RI Divorce Attorney
a.k.a. " The Rhode Island Divorce Coach ℠ "
Under the Tax Cuts and Jobs Acts, alimony that has not been already been established by a Final Judgment or Final Decree of divorce or a settlement document incidental to a Final Judgment or Final Decree of divorce as of December 31, 2018 is no longer taxable as income to the payee receiving it, nor is it deductible from income by the payor spouse.
Alimony was previously deductible to the payor against their income and includable in income of the recipient payee. This provided a modicum of fairness between the payor and payee. The payor didn't have to pay the tax on the alimony monies being paid to the recipient payee because it was money the alimony payor wasn't able to keep. By the same token the payee was held responsible for the tax on the alimony money being received but it was money the payee did not actually earn.
Why did our legislature change this long-standing deduction in the law?
The answer? Tax revenue. The person paying the alimony in a divorce or separation (called a "Divorce from Bed and Board" in Rhode Island) proceeding was almost invariably the higher earner. The person receiving the alimony payment was the lower earner. Generally speaking, the payor of the alimony was then in the higher tax bracket and would end up paying more taxes on his or her income. The recipient payee of the alimony was in the lower tax bracket and would pay less taxes on his or her income. By eliminating the deduction, the taxes paid on the alimony will now be paid by the higher tax payer in the higher bracket resulting in more tax revenue to the government.
What could the removal of this deduction mean to your Rhode Island Divorce proceeding?
If you are the payor of alimony either by entering into an agreement with your spouse to pay alimony in divorce or separation settlement or by a judgement of the court that requires you to pay it, it could mean a greater alimony burden for you if the judge does not account for this new tax consequence because you will be responsible for both the out-of-pocket alimony payment as well as the taxes on those alimony monies at the end of the year based on your tax bracket for that year.'
Will the family courts change how it determines alimony based on this change in the tax deduction?
It's unclear at this point how this will affect the courts legislatively, procedurally or administratively. The hope expressed by some practitioners is that judges in Rhode Island and throughout the country will take the removal of this long-standing tax deduction into consideration for the payor when it comes to issuing judgments providing for alimony payments. Since the tax burden can be significant depending upon the tax bracket and the amount of alimony that may be ordered to be paid, one would hope that the trend would be a reduction in the amount of alimony awarded. By reducing alimony judgment amounts the court might normally have issued prior to the removal of the alimony deduction, a judge could fairly offset the payor's total alimony burden by taking into account this tax consequence which causes the payor to pay more because of the alimony judgement. Since the spouse receiving the alimony is essentially receiving "tax-free" money and no longer has to pay taxes on the money received because it is no longer includable in income, it would seem more than equitable that the court make such an adjustment to the amount of alimony to account for the added tax detriment to the payor and the added tax benefit being received by the recipient spouse of not having to pay taxes on the alimony received.
It is always best to sit down for an advice session with a competent and experienced family law attorney in the state in which you have your issue before taking any kind of action.
For people within the State of Rhode Island, feel free to call me to set up your comprehensive low-cost flat fee legal advice session. Know what your options are before you act.
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