If a proposed Republican bill passes, divorce and taxes will take on a whole new meaning. The Tax Cuts and Jobs Act would make tax deductions for alimony payments non-existent and create an income tax free zone for those receiving the funds. The law would not affect current divorce situations, only the ones after Dec. 31, 2017, including those in California.
As the law stands, those who pay their former spouses alimony can use that sum as an income tax deduction when filing their federal taxes. Ex spouses receiving the payments must claim the funds on their tax returns. The move is expected to garner the federal government about $8 billion over the next decade. Since the money will be tax free for recipients, the government will cut out any aid to those receiving alimony payments.
Usually the individual paying alimony is in a higher tax bracket than the recipient. Currently, both individuals benefit from the alimony tax set up, since the one paying can claim a deduction, while the one on the receiving end actually gets more dollars. Some financial experts believe that those who pay alimony might feel financially squeezed by the no tax deduction rule, especially after figuring in other costs like child support. Some say this move will make divorce more painful and more difficult — especially for children involved.
Laws governing divorces are complex. Divorced people in California who are confused about changing laws that surround divorce may wish to speak with an attorney who is experienced in family law. An attorney can provide advice and guidance to his or her clients who question how changing divorce laws might affect their personal situations.
Source: forbes.com, “How Tax Reform Could Radically Change Divorce“, Malcom S. Taub, Nov. 9, 2017