The modification to the tax code during the Trump administration altered the treatment of alimony payments for divorce or separation agreements executed after December 31, 2018. Previously, alimony payments were deductible by the payer and considered taxable income to the recipient. For instance, under the prior law, an individual paying $1,000 per month in alimony could deduct $12,000 annually from their taxable income, while the recipient would report that $12,000 as income.
This change significantly impacted financial planning in divorce settlements. The shift eliminated the income tax deduction for the payer and excluded the payments from the recipient’s taxable income. Historically, the deductibility of alimony was intended to provide tax relief to the higher-earning spouse after a divorce, while creating a taxable income stream for the lower-earning spouse, effectively redistributing the tax burden. Removing this provision has altered the negotiation strategies and financial outcomes in many divorce cases, potentially shifting the balance of financial power.
