Q.  My Wife and I have been negotiating our divorce for several months. We are getting close – just finalizing a few points including how much alimony I will pay. We had been operating under the assumption that I would have to pay her at least 33% of my gross income (she doesn’t work). But, then the Young case was decided and the lawyers started negotiating a reduced amount to cover my wife’s true needs.

I am getting very worried that the tax reform will pass and I will not be able to deduct my alimony payments at all. That would cost more than the 33% order we were previously discussing.
Should I put a rush on the negotiations?

A. Your question assumes what lawyers refer to as a “fact not in evidence.” The proposed new law proposed that, starting with divorces which occur after January 1, 2018, alimony payments would no longer be permitted as a deduction which reduced the payor’s income.

Currently, when a taxpayer is in the highest tax bracket pays alimony to a spouse, the spouse – who will usually be in a lower tax bracket, will pay less tax on that income. So now “Uncle Sam” chips in to pay part of that alimony. But most of the time the “tax effect” – where the payor doesn’t pay tax on the alimony, but the payee does – the tax savings is divided between the parties.

So the payee ends up with more after-tax money which helps pay bills and do more for the children. The presumption is, as with many government programs, the more the children are helped when young, the more money they will earn. And in turn, over the long run, state and federal governments end up with more taxes. Actually that’s what happened when the so-called U.S. Government GI-Bill gave World War II veterans money to attend college. Those veterans earned degrees and – over their life-time – paid far more in taxes than they’d otherwise have paid. That’s a win-win.

Meanwhile, this past Tuesday, I read that the attempt to cut out deductions for alimony was cut out of the current bill. Even though we don’t know what will be in the final law, don’t panic. If your wife believes you want to get the divorce done before December 31st, she may make higher demands hoping you’ll cave in. Instead, make two offers. One offer is the alimony and child support numbers if the divorce is granted before December 31st.. The other is the amount to be paid if the law is passed and impacts divorces settled after December 31st.

Seeing that her net after-tax income will be more if she settles now ought to be a strong incentive for her to get on the same train you’re riding toward a December 31st divorce.