What Are Deductible Fees in an Alabama Divorce?

The most recent changes to the tax law amended the Internal Revenue Code in a way that largely does not benefit individuals going through a divorce. Specifically, the IRS does not allow for any deductions for the cost of legal fees related to divorce proceedings. In Alabama, the state code details that “Attorneys’ fees paid in a suit for separation or divorce” are not tax-deductible.

Divorce can be lengthy and costly. And while a range of legal fees and court costs can rack up as a separating couple proceeds through a divorce, unfortunately, those fees cannot be deducted from an individual’s taxable income.

While legal fees are non-deductible, there are certain instances where deductions can take place regarding alimony payments. However, for these deductions to take place, certain requirements need to be met.

Alimony Deductions

Following the implementation of the Tax Cuts and Jobs Act of 2017, certain tax benefits were suspended until 2025. One of those benefits was the alimony tax deduction and income reporting requirements.

In the past, spouses who paid alimony to their former partners were allowed to deduct those payments from their taxable income. Conversely, the party receiving the alimony was required to report that alimony as taxable income. The update to the tax code via the TCJA eliminated this practice.

However, this update to the law did allow for the grandfather in of separation agreements previously created. The updated law does not apply to divorce agreements that were in effect as of December 31, 2018. However, if an order was effective as of December 31, 2018, but changed on or after January 1, 2019, the new alimony tax rules apply.

It’s common for divorced parties to modify alimony agreements months and years after a divorce. However, this might not be the right move for everyone, especially considering the potential tax burden. A divorce agreement that was already in place before the TCJA was enacted might not benefit from modification because of the tax burden that will now apply through the updated tax code.

Child Support Payments

The updated tax law also impacted the child tax credit. Parents can now claim up to $3,600 per child. Whichever party claims the tax credit will be the party receiving the benefit. However, in some cases, both parties can split the child’s credit. While this doesn’t necessarily impact deductions related to a divorce, it does impact the return after a tax filing.

Additionally, it’s common that during divorce proceedings, a child support payment agreement is put into place. Regardless of the child support agreement, child support payments are never deductible. Additionally, child support payment is not considered income for the party receiving payments either. Unlike alimony payments, modifications to child support agreements can be made without having an impact on tax responsibility.

When to Seek Legal Guidance

Understandably, it can be stressful to think about the tax implications if you are considering moving forward with a divorce. However, preparation, planning, and understanding are your best tools to assist you as you move forward with your case.