In an earlier post, we discussed how the new tax code will affect alimony nationwide. Alimony has always been difficult to determine, but according to some experts, the new tax code will likely make things even more difficult. In the past, each state had its own rules to determine alimony, but no matter where you were, the payer could deduct alimony on their taxes while the payee would pay income tax on it. However, under the Tax Cuts and Jobs Act, alimony will no longer be deductible for payers after Dec. 31, 2018. That means that people receiving alimony will no longer have to pay income tax on it.
These changes will likely cause complications, particularly for couples divorcing in California. Many attorneys and other professionals will be unable to use the computer software they previously used to calculate alimony in the state. Some also worry that alimony payers, who will no longer benefit from tax relief, may be less willing to negotiate with their spouse. As a result, fewer cases will settle outside of court. Another issue may be that fewer couples can afford to get divorced without the tax benefit, causing a number of unhappy marriages.
There is also concern that the payer of alimony will argue that he or she cannot afford to pay as much as they would have been able to under the old law. As a result, the receiving spouse will receive less money and therefore struggle financially. They may also have a harder time contributing to retirement accounts. In addition to these concerns, there appears to be uncertainty about what the law actually means. Some are unsure whether modifications to existing alimony agreements will be subjected to the new law.
If you have concerns about whether the new tax code will affect your divorce, you may consider contacting a California divorce attorney for assistance.
Source: CNBC, "Alimony tax changes may scorch divorcing couples," Annie Nova, Feb. 16, 2018