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Tax change coming for alimony

December 30, 2018

Changes concerning tax deductions for alimony are scheduled to take effect this week, but Allen County attorneys who handle divorce cases weren’t seeing a rush of people wanting to undo their marriages.

The alimony deduction, which creates billions of dollars in tax savings each year, will be eliminated for any divorce finalized after Monday : a lesser-known part of the Republican tax overhaul President Donald Trump signed into law late last year. The looming deadline had lawyers in some areas working overtime and their clients scrambling to become ex-spouses in a bid to avoid paying higher taxes.

Claire McKenzie, a divorce attorney and CPA with Chicago law firm Schiller DuCanto & Fleck, predicted this month there would be “a rush of people” wanting to untie the knot.

Officials at the Allen County courthouse weren’t seeing an influx of filings.

Chris Nancarrow, the county’s chief deputy court clerk, said 1,457 divorce cases had been filed as of Dec. 10. That’s an 8 percent drop in filings through the same period last year, when nearly 1,588 couples filed for divorce. 

The clerk’s office expects the 2018 total of divorce filings to reach 1,590.

Ashley Hand, a partner at Beckman Lawson, chairs the Family Law Section of the Allen County Bar Association. Hand said she discussed the issue of the federal tax deduction with other area family law attorneys.

“We haven’t seen a significant increase in divorce filings in light of the change in tax laws,” she said in an email. 

For decades, the alimony payers, who are generally in higher tax brackets, have been able to deduct the payments on their annual returns, while the recipients paid taxes on the income.

By eliminating the deduction, the new law shifts the tax burden from the recipient to the payer, which in most cases means more of the money will go to the government in the form of taxes.

Last year, more than 586,000 taxpayers claimed deductions for nearly $12.7 billion in alimony paid during tax year 2016, according to the Internal Revenue Service.

Under the 2017 Tax Cuts and Jobs Act, the alimony deduction will be grandfathered for the duration of existing divorce agreements, but it will be eliminated for new agreements beginning Tuesday. The change was intended to partly offset the budget deficits created by permanently lowering the corporate tax rate from 35 percent to 21 percent.

mleblanc@jg.net

The Chicago Tribune (TNS) contributed to this story.

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