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How Will Unallocated Support Be Changing in Divorces After 2018?

Posted on in Divorce

Wheaton divorce lawyer unallocated support alimony taxesWhen spouses divorce, they will both often struggle to support themselves financially as they adjust to living in on a single income rather than two combined incomes. In some cases, a person may be able to receive financial support from their former partner. This support may include either child support meant to provide for children’s needs or spousal maintenance (formerly known as alimony in Illinois) meant to help a spouse maintain a similar standard of living to what they were accustomed to while married. In some cases, unallocated support may be beneficial for both parties, but divorcing spouses should be aware of how recent changes to the law affect this type of support.

What Is Unallocated Support?

Under current laws, spousal support payments may be deducted from the payor’s taxable income, and they must be reported as taxable income by the recipient. Child support is taxed in an opposite manner: it is not tax-deductible for the parent paying support, nor is it taxable for the parent receiving support.

In some divorce cases, combining spousal maintenance and child support into one unallocated support payment can provide tax benefits for both spouses. Since unallocated support is tax-deductible for the payor, they may be able to reduce their income to a lower tax bracket, resulting in a smaller tax burden and providing a larger amount of income that the spouses can share.

How Tax Reform Affects Unallocated Support

The Tax Cuts and Jobs Act of 2017 implemented a wide variety of changes to the federal tax code, including a provision stating that spousal maintenance will be taxed the same as child support, starting in 2019. For divorces which are completed after December 31, 2018, both alimony and child support will not be tax-deductible for the person making payments or taxable for the person receiving them.

This change will eliminate the tax benefits of combining child support and spousal support into unallocated support, and it will likely reduce the amount of income available for both spouses following divorce. Spouses who are currently planning to divorce may wish to complete the process before the end of the year in order to realize the benefits provided by the current tax laws.

Contact a Wheaton Divorce Lawyer

If you are planning to get divorced in 2018, the attorneys of Anderson & Associates, P.C. can help you understand how your taxes will be affected by the child support or spousal support you pay or receive. We will work with you to negotiate a favorable divorce settlement that meets your financial needs. Contact our DuPage County divorce attorneys today at 630-653-9400 to set up a free consultation.

Sources:

https://www.pbs.org/newshour/politics/how-the-tax-overhaul-will-affect-alimony-deductions

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