What Is the Tax Effect of Modifying Alimony on a Utah Divorce Decree Signed before January 1, 2019?

Sometimes, tax law really changes things when it comes to divorce.

One such change was contained the Tax Cuts & Jobs Act of 2017.

Essentially, the law changed how alimony was taxed.

The standard rule, which was in effect through December 31, 2018, was (1) that the person paying alimony was able to deduct that alimony on taxes, and (2) the person receiving alimony had to report that alimony on taxes.

The standard rule changed on January 1, 2019. Now the rule is (1) that the person paying alimony cannot deduct alimony on taxes, and (2) the person receiving alimony cannot report alimony received on taxes.

In other words, for the purpose of paying taxes, alimony will be considered income for the person who pays alimony, even though the person who pays doesn’t get to use that money.

Now, I’m not a big fan of this part of the law, but it is what it is.

As divorce attorneys, the question we had about the whole new alimony/tax situation was this: if you modify alimony after December 31, 2018, concerning an alimony award contained in a divorce decree signed before January 1, 2019, will the standard rule still apply, or will the new rule apply?

The IRS has now answered that question:

“[G]enerally alimony or separate maintenance payments are deductible from the income of the payer spouse and includable in the income of the receiving spouse, if made under a divorce or separation agreement executed on or before Dec. 31, 2018, even if the agreement was modified after December 31, 2018.”

So, if the divorce decree was signed anytime through December 31, 2018, it, and any alimony modification made after December 31, 2019, follow the standard rule.

Notice the IRS quote uses the word “generally” because there is an exception. The new rule will apply if:

(1) a modification “changes the terms of the alimony or separate maintenance payments”; and

(2) a modification “states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.”

So, for the new rule to apply, you must explicitly state in the modification that the new rule applies.

Click here to read the entire IRS page about this.

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