Further on the Tax Treatment of Alimony

October 31, 2018 § Leave a comment

A couple of days ago I posted about the big change in tax treatment of alimony coming after December 31, 2018.

Here are some points brought to my attention that correct and fine-tune that post:

  • I said that there must be a judgment pre-dating the demarcation date. Other tax experts believe that a binding agreement for alimony to be treated for taxes as it currently exists will satisfy the law. The key is that the agreement must on its face be binding. To me that means either a PSA or a consent with alimony as an agreed issue presented to the court for approval or some other proceeding to make it binding.
  • I also said that modification would result in making the pre-demarcation-date-alimony non-deductible and non-taxable. A more accurate statement is that modification may, in some cases, change the tax treatment. It’s too complicated for me to elaborate on here, but you need to get some competent guidance before jumping into any alimony modification post December 31, 2018.

Those are the tweaks. Here are two of my own observations:

  • Don’t expect judges to be familiar with all of the nuances of these changes. Be prepared to offer expert testimony or stipulations that cover these points.
  • Get some competent tax advice so that you can properly and accurately advise your clients. That disclaimer in your retainer agreements and PSA’s about tax advice does not relieve you of the obligation to be able to advise your clients about basics such as tax treatment of alimony and the pitfalls of modification because that’s not really tax advice — it’s divorce advice.

Thanks to the lawyer who called this to my attention.

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