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Tax reform may make divorce a bigger financial challenge

California residents will likely be aware of the proposed bill that would cause a substantial change to the tax regulations of alimony. This will primarily impact those who are considering divorce. If the bill is passed, those making alimony payments will no longer be allowed to deduct those payments on their tax returns, and it will be income tax-free for the recipients of alimony. The change will affect any divorces that are finalized after Dec. 31, 2017.

Currently, alimony expenses may be deducted from the federal income taxes of the payors, and, for the ex-spouses who receive alimony payments, it is treated as taxable income on which they must pay taxes. Such a change will end the benefits both spouses enjoyed up to now, provided by their different tax brackets. Because the paying spouse is typically in a higher tax bracket, the receiving former-spouse usually gets significantly more than what the other party pays.

It is projected that the tax revenue created by the new bill will amount to approximately $8 billion over the next 10 years. If these changes come into effect, it will likely become challenging for most ex-spouses to pay alimony along with other obligations such as child support, study funds and more. As it is, it is a struggle for most to finance two households instead of one, and while no divorce is easy for the parents, the new bill may make it even more difficult for the children as well.

Divorce is naturally a complicated process, and while the finances need careful planning, changes to the alimony bill might require additional attention. People in California who are considering divorce might get valuable advice from an experienced family law attorney who will know the latest laws. A lawyer can assist with all aspects of preparations and the ensuing proceedings while working to ensure post-divorce financial stability.

Source: nextavenue.org, "How Tax Reform Could Change the Rules for Divorce", Malcom S. Taub, Nov. 9, 2017

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