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Spousal Support - No Longer Tax Deductible!

March 31, 2019

Spousal Support - No Longer Tax Deductible!

As many of you know by now, a monumental tax law was passed by Congress and signed into law by the President. This

tax bill included provision that will have a significant impact on indivuals going through a divorce.

 

Prior Tax Rule

Previously, the party paying support would be able to write off the payments when filing their tax return. On the otherside, the party receiving support would have to claim the payments as taxable income. This was exclusive to spousal support, as child support is not considered income and is not taxable.

 

New Tax Law

On January 1st, alimony will no longer be tax deductible for the paying spouse and the recipient spouse will no longer be taxed on it.How Are Things Going to Change? The tax overhaul, resulting from the Tax Cuts and Jobs Act (TCJA), will scrap a 75-year-old tax deduction for spousal support payments. The new law, which takes effect January 1, 2019, will not affect anyone who signs a divorce agreement before December 31, 2018.This issue is one of the top 5 concerns of clients walking through my doors, so I thought sharing on it was important. 

 

How Will This Impact Family Law

California judges will have to consider this change if they order spousal support in any particular case. This is because Family Code section 4320, subd. (j) requires a court to consider, among other things, “[t]he immediate and specific tax consequences to each party”. Up until now, a court could comply with this requirement by merely indicating that “spousal support is deductible to the payor and taxable to the recipient”. Now, it seems, the immediate tax consequence might be no consequence.

 

Who is Affected

The new law appears to say that modifications after 2019 will not affect decrees entered before 2019 unless the parties use language in any agreed modification to say that the new law is going to apply.

 

That means a payor who is already divorced (or gets divorced in 2018) and who is able to deduct spousal support will not be able to successfully argue for a new order lowering or eliminating spousal support on the basis of taxes, because, for that person, spousal support has always been tax deductible and always will be.


Contact my office at (951) 708-1521 or email us at admin@feduplegal.com for information about obtaining or changing a support order.
*Please note, support is a serious issues, this post is not to be taken as legal advice, I am not a licensed Attorney and it is always best to consult with a licensed Attorney prior to taking any action*

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