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Collecting alimony payments for post-2018 divorces

On Behalf of | Jun 13, 2019 | Alimony

Alimony is one of the most controversial topics when it comes to divorce in Wisconsin. Some spouses feel bitter about paying spousal support, while others may feel awkward or guilty about asking for it. Some people may believe that homemakers and supporters are entitled to continued support from the breadwinner, while others believe it perpetuates a cycle of dependency that the former homemaker now has no incentive to break free from.

Throw in the new changes to alimony caused by the recent tax reform and the situation becomes worse. CNBC notes that the higher-earning spouse can no longer get a tax deduction for the alimony payments, which may make them less willing to pay. One potential bargaining chip is to ask for a lump-sum IRA payment instead of ongoing spousal support.

The higher-earning spouse gets rid of an account that would have cost them higher income tax for withdrawals. The lower-earning spouse may be in a lower-tax bracket which then puts them in a better position to pay taxes on the money received. It is important to note that there may be a penalty for withdrawing before reaching age 59 and a half, so this may not be ideal for ex-spouses who need immediate access to cash to support themselves.

Forbes notes that whether or not a spouse will receive spousal support is calculated later on during the divorce proceedings. This implies that the more the higher-earning partner is willing to part with in terms of assets, the lower the need may be for ongoing spousal support. The lower-earning spouse may also be more willing to give up spousal support in return for assets. This may include a share in the higher-earning spouse’s business if they have one, the home, a car or other provisions.

The changes to how alimony payments are treated for tax payments may make spousal support negotiations a minefield to navigate. Even so, if ex-spouses cooperate and maintain a clear head, they may find creative ways around the issue.