Property division can be extremely complicated, especially when a California has complex assets to split. A divorcing couple might pay particular attention to the tax implications of any property settlement, but they may overlook another potential financial problem in a high asset divorce. Whereas a person paying alimony could once deduct the amount on his or her taxes, those payments are no longer deductible. Instead, individuals will need to explore other options for minimizing taxes after a divorce.
In order to replicate the past cost-saving measures of the old alimony tax deduction, couples should carefully focus on property division. Retirement accounts are an excellent place to start, especially if one spouse earns less than the other. When dividing retirement savings, the lower-earning spouse could receive more of the couple’s retirement assets and agree to lower alimony payments. In this way, a person might make up the amount of alimony that was reduced while also minimizing tax consequences. However, this approach is usually best reserved for payers who can effectively rebuild their retirement savings.
The division of investments that produce large gains may also work for some. The spouse who would otherwise have to pay alimony could choose to make a lump sum payment from those gains, which would have lower tax consequences than monthly alimony. Gains under $39,475 are not taxed at all, which could be beneficial to both parties.
Alimony is an important part of California family law. These post-divorce payments help secure a financial foundation for a person who earned much less than his or her ex-spouse or who left the workplace altogether after marriage. However, since recent changes to the tax code eliminated the alimony tax deduction, couples should explore other options for minimizing taxes in a high asset divorce.