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How Changes to Federal Tax Law Affect Spousal Support

Posted on in Spousal Support

California family lawyerThe Tax Cuts and Jobs Act was passed by the States Congress last December, resulting in the most major federal tax reform of the last 30 years. This law affects nearly everyone in the U.S., and discussion of some of its changes, such as a lowered corporate tax rate and an increased standard deduction, have filled the news as financial experts examine its impact. However, one lesser-known aspect of the law is important for divorcing couples to understand, since it will affect how spousal support (which is traditionally called alimony) will be taxed.

How Alimony Is Taxed

Previously, when a spouse who earned a larger income paid spousal support to their former partner, they would be able to deduct this amount from their taxable income, and the payments would be considered taxable income for the spouse receiving them. However, the Tax Cuts and Jobs Act changes this, so that alimony will now be treated like child support. For divorces finalized after December 31, 2018, spousal support will not be tax-deductible for the payor or taxable for the payee.

How This Change Affects Divorcing Couples

Under the old law, both spouses could typically benefit from the way spousal support was taxed. By deducting the payments from the payor’s taxable income, this spouse may have been able to be taxed in a lower tax bracket, meaning that the overall tax burden was less for both spouses. By removing this benefit, the number of spousal support payments may be less than they would have been prior to this change in the law.

For couples who are planning to get divorced in 2018, it is important to understand how this law will affect the amount of spousal support in their divorce agreement, and they should also be sure to understand how their taxes will be affected by the division of community property. Spouses may wish to finalize their divorce prior to December 31, 2018, in order to take advantage of the current law, and couples who have a prenuptial agreement may need to modify its terms to reflect the updated tax law.

Contact a Los Gatos Divorce Lawyer

If you expect to pay or receive spousal support following your divorce, it is important to consult with an attorney who can help you understand your rights and obligations under the new tax law. At the Law Offices of Benita Ventresca, we will work with you to protect your rights and interests throughout the divorce process, helping you reach a satisfactory resolution. Contact a Los Gatos, CA spousal support attorney at 408-395-8822 to schedule a free consultation.

 

Sources:

http://money.cnn.com/2017/12/15/pf/taxes/alimony-tax-bill/index.html

https://www.pbs.org/newshour/politics/how-the-tax-overhaul-will-affect-alimony-deductions

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