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Jennifer McCaskill
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The retirement implications of upcoming alimony changes

Most New Jersey residents are aware that 2019 will bring new changes in the way that spousal support is handled during a divorce. Once this year comes to a close, the party tasked with making alimony payments will no longer be able to claim those expenses as deductions on his or her tax return. The party receiving those payments will no longer have to claim them as income. However, these changes are prospective only and do not affect divorces that have already be finalized.

That might seem like a good deal for the recipient, but that's not always the case. Consider, for example, a spouse who is nearing retirement age but hasn't been in the workforce for many years, having chosen to manage the household and raise the kids during the marriage. Even if that spouse gets a decent alimony settlement, he or she cannot use those funds to contribute to retirement savings like an IRA or Roth account. 

That's because alimony will no longer be a form of earned income, based on the new tax law changes that kick in at the end of this year. Being effectively "locked out" of those valuable retirement investments can alter the financial outlook, especially for a spouse who has little in the way of existing retirement savings. For those who are also older and have fewer years left to work, the outcome can be dire. 

The solution lies in proper planning during the divorce process. Alimony certainly plays a role, but there are other significant financial issues to consider. For many in New Jersey, accepting a greater share of an existing retirement account instead of higher alimony or other assets might make good financial sense. 

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