Matrimonial litigators are bracing for big changes to their practice thanks to the overhaul of the U.S. tax code signed into law in late December.

The Tax Cuts and Jobs Act of 2017 shifts the tax burden for alimony from the recipient to the payer, eliminating a deduction for anyone making such payments while no longer including them in the recipient's reportable income. The changes take effect for divorces signed after Dec. 31, 2018, and some practitioners say they've already seen signs of a last-minute rush by litigants who are seeking to wrap up divorce proceedings before year-end, thereby avoiding the changes to the tax law.

Beyond the scramble to resolve divorce cases before the changes take effect, the new tax law is expected to make disputes over matrimony more difficult to resolve. Since the spouse paying the alimony is often in a higher tax bracket than the recipient, the change in law will often leave a smaller pot of money from which to pay alimony, some practitioners said.

“It could make it more difficult to resolve a case,” said Eric Solotoff, co-chairman of the family law practice at Fox Rothschild in Morristown, New Jersey. Solotoff's practice has begun to see an influx of clients who, mindful of the changing law, are seeking to have their cases resolved quickly.

“Before, the deduction allowed the transfer of income from one spouse to the other. The problem is there will be less money to go around, starting in 2019,” said Solotoff.

Although the overall impact of the tax law is unclear, when factors such as an increased standard deduction and increased bonuses paid by corporations to employees in light of corporate tax reductions are factored in, Solotoff said “it will be more difficult to live a comparable lifestyle” after a divorce under the new law.

In addition, although child support payments remain tax exempt under the new law, Solotoff expects to see downward pressure on the amount of child support payments under the new law.

The new tax law upends a 75-year-old regime under which alimony was taxed at the recipient's lower tax rate because she was the one who spent those funds, said Claudette St. Romain, an associate professor at Seton Hall University School of Law. The vast majority of alimony recipients are women, she said.

“There was a logic to the prior law: the high-income person didn't pay taxes because they didn't have the use or benefit of that money. The new law means the high-income person pays the taxes,” said St. Romain.

St. Romain said alimony is less prevalent now then when married women were more likely to stay home and take care of children, but it can be important in some two-income households. “Alimony remains a critical issue in family law because men are still the higher wage earners. And if they've been married a long time, women have the right to share in the proceeds of the partnership,” she said.

“What it means is there will be lower alimony offers being made to the needy spouse. The needy spouse's needs won't change but the amount of income to be assigned will be lower. Both spouses are likely to suffer some,” St. Romain said.

Matrimonial lawyers will face a greater challenge explaining the new laws to their clients and convincing them to accept terms the client might not find attractive, said Paris Eliades, a family law attorney in Sparta, New Jersey.

Loss of the alimony deduction “is not going to sit well with [attorneys] who were used to conveying to the payor that, even though there's this harsh reality of paying alimony, there's a tax break. It's a completely new frontier,” said Eliades.

A divorcing client might tend to discuss the terms of his case with friends who were previously divorced, and will be puzzled to learn that he can't enjoy the same deduction that his friend enjoyed, said Eliades.

In addition, calculating alimony payments will be a new challenge, without the aid of rules of thumb used in the past, said Eliades.

Eliades said his firm expected the tax changes to take effect in 2018, and he hurried to close some cases in late 2017 to ensure his clients would be covered by the former tax code. Allen Scazafabo Jr. of the family law group at Riker, Danzig, Scherer, Hyland & Perretti in Morristown likewise hustled at the end of 2017 in order to get better terms for his clients, only to find out the new tax code will go into effect in 2019.

Scazafabo said he expects a similar rush at the end of 2018, although not all his cases will lend themselves to resolution before the end of the year.

Under the new tax code, bringing parties to an agreement on alimony will be more difficult, at least at the outset, said Scazafabo.

Clients often come in with their own ideas about how much alimony should be, sometimes based on formulas they find online, but those ideas will be even farther away from reality after the tax code changes take effect, said Scazafabo. Explaining alimony payments to clients has always been difficult, even before the new tax law.

“I think it'll create a larger gap in initial proposals from counsel. In the short term, it will make cases more difficult to settle, until lawyers get their bearings. We're all going to be adjusting. I do believe lawyers adapt and they settle cases,” he said.