For the past 75 years, spousal support payments have been a tax deduction for the payer. Now, because of a new tax code, alimony can no longer be deducted, and taxes will not need to be paid by the recipient. California and other states set their own rules about how much alimony is paid and when payments should end. Across the country, there is no consistency regarding alimony.
The new tax code is a disruption to those who are going through a divorce. Predictions are that divorces will become nastier because the tax benefit to alimony payers often acts as a buffer during negotiations. Experts also agree that more divorces will go to court now that the tax credit is off the table. One report by a state governor claims that two households cannot function financially as an intact single family household.
Under the current code, the highest-paid earner receives tax relief by transferring a designated dollar amount to the spouse earning less income. Without the tax credit in 2019, some people may not be able to afford a divorce. Some claim that without the tax benefit they cannot divorce, and they will be forced to remain together in a miserable marriage.
Divorce is such a vulnerable time in a person’s life with emotions running high. In California, divorce cases may become more difficult to settle without the alimony tax credit. Those who have questions may benefit from consulting with a divorce attorney who knows the new tax laws and can anticipate, and help mitigate, the impact they will have on divorcing couples.
Source: cnbc.com, “Alimony tax changes may scorch divorcing couples”, Annie Nova, Feb. 16, 2018