The new administration has made many changes in United States policy and law. One of the biggest has been passing the Tax Cuts and Jobs Act at the end of 2017. This new legislation has provided sweeping changes to many areas of tax law, including the tax laws surrounding divorces and the tax implications of the different components. If you are contemplating a divorce or currently involved in one, it is important for you to have a basic understanding on how the Tax Cuts and Jobs Act could impact your divorce or custody case.
Alimony is one of the areas that was substantially modified. Alimony is called “spousal support” in California and may be ordered to help equalize the income of both parties following a divorce, based on a long list of factors. In the past, spousal support was deductible to the spouse paying alimony and taxed as income to the spouse receiving spousal support. This has been drastically changed under the new tax law. Now, for any divorce entered on or after January 1, 2019, the paying spouse may no longer deduct the spousal support from his or her income, and the receiving spouse is no longer required to count the spousal support as income. Note that this only impacts divorces entered on or after January 1, 2019. For divorces entered before this time, the deduction rules will remain the same, even if the spousal support is later modified.
Child support issues are also impacted by the new law. While child support payments will continue to be treated as the TCJA treats spousal support after January 1, 2019, there are other important changes. The TCJA eliminates personal exemptions. This means that the tax credit for children on taxes is no longer valid. In the vast majority of cases, parents would have a provision in their parenting plan that specifically articulated which parent would be permitted to claim the child on his or her taxes in which years. After the passing of the TCJA, this is a thing of the past. Note that this is applicable to all child support and custody orders, not just the ones entered on or after January 1, 2019.
Understanding tax law and child custody is an essential step in your divorce case. If you have questions, contact us today.We can talk to you about your child and your obligations.