In North Carolina a dependent spouse in a divorce or separation may be eligible for alimony. A dependent spouse is both “actually” and “substantially” dependent on the other spouse for their maintenance and support. Additionally, North Carolina courts consider a variety of factors, including marital misconduct, when determining the amount and duration of an alimony award. Alimony is a well-established claim for relief, however, some very recent changes in the 2018 Tax Code have major consequences for alimony and raise some new questions about seeking and defending alimony claims.
Prior to the 2018 Tax Code changes, those paying alimony could take a tax deduction on the amount of alimony paid. However, under the 2018 Tax Code changes, any divorce or separation instrument executed after December 31, 2018 is subject to the following two provisions: 1) Alimony deductions will be eliminated for individuals paying alimony and; 2) Those receiving alimony will not report alimony as income for tax purposes.
Naturally, some questions are raised. What if I am already paying alimony? What if I am already receiving alimony? Do we have to go back to court or execute a new agreement? No, you will not have to go back to court or execute a new agreement, and you will not be affected by these changes. However, these new tax code provisions will apply to any divorce or separation instrument executed prior to December 31, 2018 but modified after December 31, 2018 if the modification expressly provides that the 2018 Tax Code changes apply to the modified agreement or order.
If my current alimony order is modified after December 31, 2018 by the court, is it possible that I will lose the alimony deduction? Yes, this rule applies to voluntary and involuntary modifications. For example, if the court modifies alimony and expressly mandates that the 2018 Tax Code changes will apply, you will lose the ability to deduct your alimony on taxes. This change would also apply to the alimony receiving spouse allowing him or her to not report the modified alimony as income.
What does this mean for alimony going forward? It is difficult to tell exactly how the changes to the alimony tax deduction will affect claims and defenses to alimony going forward in North Carolina. Alimony claims can vary from fairly amicable to highly contentious, but no matter what it is extremely important for those who are the supporting spouse and those who are the dependent spouse to be informed of the consequences of the new tax code changes.
All situations are unique and this information is general in nature and for informational purposes only. The experienced and committed team of Family Law attorneys at Vernon Law Firm can give specific advice and guidance on this and many other domestic issues during a consultation.