Spousal Support and the New Tax Bill - the Rush to Get Divorced Now / by Cassandra Hearn

The new administration has brought tremendous changes in many different ways. One significant area of change has been that of federal taxes. In 2017, the federal legislature passed, and the President signed, the Tax Cuts and Jobs Act, which contains significant overhauls of large sections of the United States Tax Code. Most Americans will be impacted by some part of these changes. One big area of change will be spousal support.

Under the current law, which has been in place for seventy-five years, spousal support payments are counted as income to the spouse receiving support. These payments are also deductible to the spouse paying support. This can be used as leverage in divorce negotiations, as it can be used as an incentive to take some of the sting out of making payments for the paying spouse.  However, the new tax bill makes drastic changes.

The new tax bill states that for divorces granted on or after January 1, 2019, spousal support is no longer tax deductible for the paying spouse. Moreover, the spouse who receives the support no longer has to pay taxes on the support amounts that he or she receives. There are several results of this change. One big result is that there is now a rush to get divorces finalized before January 1, 2019. The new tax law does not apply to divorces that are finalized on or before December 31, 2018. Another result that will continue for years to come is that the new law is likely to result in a major shift in how divorce litigants bargain concerning spousal support. Without a tax deduction, a paying spouse now has a strong incentive to push for a spousal support award that is smaller in amount and shorter in duration.

Californians considering divorce should not wait, as most divorces will take a minimum of six months to complete.  This means that the last possible day you can file and personally serve your divorce, while still taking advantage of the tax benefit under the old tax code, will be June 1, 2018. 

If you are considering divorce and trying to understand how the new tax bill impacts you, you need the help of an experienced attorney. Contact us today at 619-800-0384 to discuss your case and your rights.