Tax law changes may affect divorcing spouses

A California couple planning to divorce may be particularly concerned if they need to finalize their split after the new year in 2019. This is because of a change in tax law that accompanied the Tax Cuts and Jobs Act. The new law passed in December 2017, but its provisions related to spousal support go into effect only after 2018 comes to a close. For many separating couples with significant assets, spousal support is an important part of the divorce. This is particularly the case after a long-term marriage or one in which a partner gave up a career to be a stay-at-home parent.

For decades, spousal support has received the same tax treatment — payments are tax deductible for the payer and taxable for the recipient. This results in an overall tax savings as the deduction can be significant and the tax payments are made at an overall lower tax bracket. As a result, many divorcing spouses have concluded mutually beneficial agreements that include generous spousal support.

However, this will change in 2019. Instead, payers will no longer be able to deduct spousal support payments from their taxes. The recipient, on the other hand, will get the income tax-free. While this appears to benefit recipients, it will likely drive down the overall amount of spousal support paid. The changes will not affect divorces that are finalized before 2019, so many spouses are hurrying to end their marriages before the new year. Others are looking into creative options to manage tax liabilities for 2019 and beyond.

The financial effects of divorce can linger long after the emotional and practical aspects of ending the marriage have faded away. A family law attorney could help a divorcing spouse protect their assets and achieve a fair settlement on all issues, including spousal support and property division.