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Divorce, alimony and the new tax law

Couples in California who are thinking of ending their marriage may have questions about the new tax law. Although there has been frequent mention of the implications it will have on alimony after a divorce, it remains confusing. This is because the new law may benefit the spouse receiving alimony, but jeopardize the one paying it.

The way alimony is handled on a person's tax return will change in Jan. 2019. Some people suggest that couples who are planning to divorce may benefit from doing it before the end of 2018. The law, as it stands currently, allows a paying spouse to report alimony payments as a deductible expense while the receiving spouse has to record them as taxable income on tax returns. However, come 2019, the paying spouse will lose the tax benefit, and the receiving spouse will gain because he or she will not have to pay tax on any alimony received.

When considering those changes, a higher-earning spouse may want to make sure the divorce is finalized before the end of 2018. And the one with the lower income might want to delay until 2019 to avoid paying tax on  any alimony received. Some say that these changes in the tax law will simply require couples to take them into consideration when working out all of the details in a divorce, including property settlement, child support and spousal maintenance. 

Based on these factors, a court may award a lesser alimony amount than it would otherwise have ordered, and that may make up for the fact that it is no longer tax deductible by the paying spouse. Also, even though the receiving spouse may receive less alimony, he or she will benefit by not having to pay income on it. It remains to be seen how these details will get sorted out as the new tax law takes effect. 

Any questions about a divorce in California can be answered by an experienced family law attorney. A lawyer can explain the intricacies of the tax implications and also assist with other issues. These might include property division, child-related matters and more.

Source: CBS SF Bay Area, "New Tax Law To Impact Alimony Deductions", Mark Sayre, Dec. 20, 2017

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