Alimony can represent a significant post-divorce expense, possibly for decades into the future. In the past, alimony payments were deductible for the supporting spouse and helped offset the expense of providing monthly payments to the dependent spouse. However, after a change to the tax law, alimony payments will no longer be tax-deductible for divorce agreements since 2019.
Tax Treatment of Alimony in 2019
Before 2019, alimony payments were generally tax-deductible for the payer spouse, where certain requirements were met. However, tax law changes that were part of the Tax Cuts and Jobs Act (TCJA) eliminated the deduction for alimony agreements made or modified after 2018. Additionally, alimony payments do not have to be reported as income for the dependent spouse under the new rules.
According to the Internal Revenue Service (IRS), you cannot deduct alimony or separate maintenance payments made under a divorce or separation agreement:
- Executed after 2018, or
- Executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification.
Alimony and separate maintenance payments received under such an agreement are not included in your gross income.
Alimony Deduction Before 2019
Individuals who entered into a divorce or separation agreement before January 1, 2019, are still covered by the prior tax treatment. However, if the divorce agreement is modified after 2018 and the modification expressly states the deduction no longer applies, the new tax laws will generally apply.
For alimony agreements pre-2019, the alimony payments still generally have to meet a number of requirements, including:
- The spouses do not file a joint return with each other;
- The payment is in cash (including checks or money orders);
- The payment is to or for a spouse or a former spouse made under a divorce or separation instrument;
- The divorce or separation instrument does not designate the payment as not alimony;
- The spouses are not members of the same household when the payment is made (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.);
- There is no liability to make the payment (in cash or property) after the death of the recipient spouse; and
- The payment is not treated as child support or a property settlement.
Alimony in North Carolina
Under North Carolina divorce law, a spouse who earns substantially higher wages than their partner may be ordered by the court to pay alimony to a dependent spouse. The purpose of these payments is to assist a spouse in maintaining the standard of living they were accustomed to during the marriage until they become completely self-sufficient.
There are a number of factors that the court considers in determining whether or not alimony will be awarded, the duration, and the amount of alimony. Some factors include:
- Marital misconduct of either of the spouses;
- Relative earnings and earning capacities of the spouses;
- Duration of the marriage;
- Contribution by one spouse to the education, training, or increased earning power of the other spouse;
- Standard of living of the spouses established during the marriage; and
- Federal, state, and local tax ramifications of the alimony award.
Federal tax ramifications of an alimony award may be a factor in determining alimony in North Carolina and the new tax laws could have a significant impact on the cost of spousal support. Talk to your divorce attorney if you have any questions about how the tax law may affect your divorce agreement.
North Carolina Family Law Firm in Shelby
If you have any questions about alimony, post-separation support, or other concerns about a divorce in North Carolina, the skilled attorneys at Caulder & Valentine are here to help. Contact us today for a consultation.