Three Common Questions About the New Alimony Tax Law
In December 2017, President Trump signed into law the Tax Cuts and Jobs Act. All taxpayers will have changes to their 2018 Federal taxes, but if you are divorced, or getting divorced, you probably have some questions about the key changes on alimony.
Alimony, or spousal support in California, was tax-deductible by the payor and taxable as income to the payee. This was a shift of income to the person in a lower tax bracket and benefitted both sides resulting in more dollars to pay towards spousal support. As of January 1, 2019, the payor can no longer deduct the spousal support payment and the recipient no longer has to claim the money as income.
How this new law affects you will depend on where you are in the divorce process.
1. I am already divorced and have a divorce decree (Judgment of Dissolution) filed with the Court. How does the new law affect me?
If your Judgment of Dissolution was filed with the Court on, or before, December 31, 2018, the new law does not affect you. On rare occasions, parties agreed to not have any tax consequences/benefits for spousal support payments – but if you did not specifically do this, the spousal support paid by the payor is still deductible and taxable to the payee. Essentially, you are grandfathered in.
2. I am in the middle of my divorce and I have temporary spousal support orders. How does the new law affect me?
If your temporary, or interim, spousal support orders were made on, or before, December 31, 2018, they will be deductible to the payor and taxable to the recipient. However, when you finalize your divorce and obtain a Judgment of Dissolution, the new law will be applied and there will be no effect on either you, or your spouse’s, taxes going forward.
3. I have not filed for divorce yet. If I wait, will I be able to deduct spousal support payment in the future if the law is changed?
If you have not yet filed for divorce, the new law will be applied to you and any payments for spousal support, or spousal maintenance, will not be tax-deductible to you. This tax reform law was the most sweeping tax revision in 30 years for this country. It is not likely the old law will be brought back anytime soon.
If You Are Ready to Discuss Divorce, a Family Law Attorney Can Help
Every marriage is different and decisions to end marriages are deeply personal. It is important to have an experienced, knowledgeable divorce attorney by your side who can advocate on your behalf. To learn more and to schedule a free consultation, contact us online today or call 619-866-3756.
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