What Are The REAL Facts Around The Tax Law Changes And Alimony?

With the 2018 tax law overhaul, those in the divorce business have been trying to get our arms around the removal of deductible alimony payments and the intricacies of deadlines and some of the other fine print. Now that we’ve had time to really examine the changes, some things are coming to light.

When is the Real Deadline?

Based on a recent article by BNY Mellon, they cleared up one critical element of the timing. A couple wanting to make deductible alimony part of their divorce agreement does NOT have to have their divorce finalized before 12/31/2018. They only have to have a signed written separation agreement stating so before the deadline.

What About Modification After 2018?

It remains unclear whether modifications made after 2018 will cause the agreement to lose its grandfathered status. It’s POSSIBLE that modifying might result in loss of the deductibility. Until the IRS provides guidance, it may be necessary to seek a private letter ruling (PLR) to clarify what the result of a modification might be.

Can You Use Alimony to Contribute to an IRA?

Not anymore. With the new tax laws, alimony is no longer considered earned income therefore cannot be eligible for an IRA contribution if it is the sole source of income.