Login | April 26, 2018

Alimony and utilities



MALCOLM BERKO
Taking Stock

Published: April 12, 2018

Dear Mr. Berko: Could you comment on the changes in tax law that affect alimony payments? As a soon-to-be-divorced 52-year-old man, how do they affect me? I will take a huge hit after we sign our divorce papers, though fortunately, it's a friendly divorce after 26 years and three kids. I have taken a powder in the market and need to be more conservative. I have about $60,000 in cash and would like to buy three utilities that have a good record of dividend growth and some appreciation potential. Which utilities would you recommend? -- DT, Erie, Pa.

Dear DT: Right now, alimony payments are deductible from the payer's gross income and included as a taxable item in the recipient's income. But the new tax law changes the playing field for alimony, which my dad defined as "bounty from the mutiny." It seems that alimony won't be a taxable deduction for the payer, nor will it be taxed as income for the payee on a divorce agreement signed after 2018. Alimony recipients after 2018 won't be required to report alimony payments as income. In other words, the money paid to a spouse (with an agreement signed in 2019 or after) will accrue to the payee without tax liability. However, the payer will not get to deduct the alimony payments to the payee. This suggests, according to my certified public accountant, who I suspect works for the IRS, that the treatment of alimony will be similar to that of child support. This change in tax law significantly affects the economics of divorce and affects both parties. Because alimony will not be a deductible tax item, it encourages the payer to negotiate smaller payments. As I said, all divorce and separation agreements signed in 2018 or before still allow for deductions. But for 2019 and after, whammo! It stops as abruptly as a rabbit's tail. So yes, if your agreement was signed this year, you can deduct your alimony payments, and your ex-wife will have to pay taxes on the amount she received. But I strongly recommend that you consult a CPA or a lawyer before you rely on this advice. There's more to it than my brief explanation, and a mistake could force you to move to a condo in North Dakota.

Each of the following utilities yields 4.5 percent or better. Each has raised its dividend for at least the past 10 years, and I believe that the dividend increases will continue. Open an account with Charles Schwab or a similar discount broker, with which the acquisition costs will be under $10 for the entire kit and caboodle. Be sure to reinvest the dividends on each stock. This will buy you additional shares each quarter and dramatically improve your total return when you're ready for Social Security.

Dominion Energy is a holding company for Virginia Electric and Power Co. and others, with 2.6 million electric customers and 2.3 million gas customers. I like Dominion Energy (D-$68.40), which yields 4.9 percent, has more than doubled revenues since 2003 and has increased its dividend from $1.09 in 2003 to $3.34 today. If you reinvest all the dividends and if the past is prologue, D, which has increased its dividend in each of the past 13 years, will give you a remarkable return. Credit Suisse has an "outperform" rating on Dominion.

I also like Duke Energy (DUK-$76.40), which is a holding company representing 7.4 million electricity consumers in Florida, Tennessee, Kentucky, Ohio, Indiana and South Carolina. Earnings of $4.80 a share this year are impressive, and the $3.56 dividend, which yields 4.5 percent, has been raised yearly since 2007. Value Line thinks DUK could be a $100 stock by 2022.

Southern Co. (SO-$44) is a $23 billion-revenue company, and its $2.32 dividend yields a swell 5.2 percent. And SO's dividend has increased annually since 2000. SO provides power to 4.6 million customers in Georgia, Alabama, Florida and Mississippi. And it also provides gas to 4.5 million customers in New Jersey, Illinois, Virginia and Tennessee. Standard & Poor's has an "outperform" rating on SO.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.


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