Alimony, child support and the TCJA

Couples in California who are considering getting a divorce may need to consider how the Tax Cuts and Jobs Act will impact their lives after their divorce if their divorce agreement is signed after 2018. There are number of provisions in the legislation that include changes to deductions, exemptions, federal tax rates and the Alternate Minimum Tax limit. However, there is also language in the TCJA that divorcing couples should be particularly aware of, specifically those dealing with alimony and child support.

For individuals whose divorce agreements are signed on or after Jan. 1, 2019, they will no longer be required to include any alimony they receive as part of their taxable income or be able to deduct any alimony they pay to an ex-spouse from their taxable income. The payment of alimony will be considered a simple transfer of property in accordance with divorce and will have no income tax consequences.

This is a significant change in the tax law that will make alimony more of a burden for payors as the deductibility of alimony allowed payors to reduce their income taxes. While the tax law change may seem to directly benefit the recipients of alimony, allowing them to have a higher cash flow, it is believed that it will directly contribute to lower alimony awards in the future.

A family law attorney may work to obtain favorable settlement terms for divorcing clients regarding divorce legal issues. Depending on the factors of a divorce case, litigation or negotiation may be used to resolve disputes regarding the division of marital property, child support, alimony, visitation and more. The attorney may advise clients about how whether or not they sign their divorce agreement before or after the end of 2018 may be a factor in the settlement terms that should be pursued.