Tax code change to impact divorce negotiations

| Nov 14, 2018 | divorce | 0 comments

When going through a divorce process, spouses in California don’t generally try to make the process last a long time. Now, however, they may have an added incentive to work on speeding up the path to a final divorce agreement and settlement, at least between now and the end of the current calendar year.

The reason for this push to get divorced, according to Bloomberg, is the upcoming switch in tax law under the new Tax Cuts and Jobs Act that is set to take effect at the beginning of the New Year. Historically, when a couple gets divorced and one person has been identified as responsible for paying alimony to the other, the tax liability for those funds was put on the person who received the money.

Starting in January, the tax liability for those funds will now be put on the person who pays the money. In addition to paying taxes, this same spouse will simultaneously lose the ability to deduct that money from their tax return, so it may feel like a double whammy to them.

The new law may well reduce a divorcing couple’s overall income which could reduce spousal support or have implications for other areas of a property division settlement. This is because the tax bracket of the person who pays alimony is usually higher than that of the person who receives alimony, making the amount of tax paid on spousal support greater than it would be if the tax law did not change.