Spousal Support & Tax Cuts & Jobs Act In North Dakota

Spousal Support Under The Tax Cuts And Jobs Act

April 18, 2019

Spousal support, also known as alimony, is a financial obligation one ex-spouse pays to another. Why, how much, and for how long spousal support is to be paid are topics for another blog article. This article simply discusses the effects the Tax Cuts and Jobs Act (TCJA) has on spousal support in North Dakota.

What Is The Tax Cuts And Job Act?

As Americans we all pay taxes. The amounts we pay and when we pay them are regulated by the Internal Revenue Service (IRS). The IRS follows the laws laid out within the Internal Revenue Code (IRC). The IRC was changed significantly in December of 2017 when the TCJA was passed. The TCJA reformed the IRC in many different ways including eliminating the tax exemption for children, doubling the child tax credit (see blog regarding this issue here), nearly doubling the standard deduction, imposing certain limitations on standard deductions, and reducing income tax rates. With tax season upon us, many of you may have already realized some of these benefits/detriments when filing your taxes this year.

How Did The TCJA Affect Spousal Support?

Before the TCJA was enacted, spousal support was tax-deductible to the Payor and taxable to the Payee. In other words, if you were ordered to pay your ex-spouse alimony in a divorce action, you were able to deduct the entire amount from your gross income. As such, you did not pay any taxes on whatever it was you paid your ex-spouse in alimony. So, if you were to pay your ex-spouse $60,000 a year in alimony, the practical effect was that you were actually paying them around $42,000 (assuming the Payor was in a 30ish percent tax bracket) because of the taxes you saved.

This has changed.

The TCJA states that any spousal support obligations ordered after December 31, 2018, are taxable to the Payor and tax-deductible to Payee. As long as you were divorced prior to December 31, 2018, and were ordered to pay spousal support, you were “grandfathered” into the old rule and are able to deduct any spousal support on your taxes moving into the future.

What Are The Practical Implications Of The TCJA?

Although not explicitly stated anywhere, it should be the case that spousal support awards post-December 31, 2018, should decrease. One of the factors a Court in North Dakota looks at when determining whether a spousal support award is necessary is “the needs of the obligee (Payee) and the obligor’s (Payor’s) ability to pay.” A Payor’s ability to pay is significantly affected by the taxes he or she must pay on the alimony award. That same $60,000 alimony payment referenced above has now become a $78,000ish payment, again assuming the obligor is in one of the higher tax brackets.

Because support awards just became a lot more expensive for a potential payor and still leave a soon-to-be-ex-spouse with the same “needs” they had before the TCJA was enacted, it is the opinion of this writer more cases will end up going to trial. There are only so many dollars to go around and the room to meet both someone’s needs and someone else’s ability to pay just got smaller.

If you want to discuss this or any other issue related to your divorce, you can reach the Family Law Team at SW&L at 701-297-2890. Or you can email us through the contact form below.

The information contained in this article and on this website is for informational purposes only and not for the purpose of providing legal advice.