A tax court judge recently ruled that paying a former spouse’s student loan could be claimed as an alimony tax deduction. The decision is considered to be quite profound since the noose has been tightened on alimony deductions as per the federal Tax Cuts and Jobs Act (TCJA), which also affects tax deductions. As it currently stands, alimony payments are deductible for the payor and taxable for the payee, but that will all change this Jan. 1 and will also affect divorcing Illinois couples.
The California case upon which the judge made his decision hinged upon a 2011 divorce decree, which showed that the couple not only agreed to the division of assets but also spoke to debts. The decree stipulated that the husband would pay off his former wife’s student loan. The judge ruled that this constituted alimony.
The ruling could affect couples who have recently divorced or who are in the throes of the divorce process. Most divorcing couples may be unaware of the rules surrounding divorce proceedings. They may each need direction and explanation of the legalities involved. There are certain stipulations for any payments to a former spouse to be considered alimony. An attorney may be able to shed light on his or her clients’ situations when it comes to what those criteria are.
An Illinois resident in this sort of circumstance may need advice or guidance when it comes to the tax ramifications of divorce. He or she may also need to know how tax laws currently affect alimony and what changes are on the horizon come next year. An attorney may be able to determine whether alimony is appropriate and, if so, could estimate a fair amount.