Divorce Tax Laws in California

A New Tax Law and its Implications in Divorce

There is a new change in the tax law that states alimony deductions will expire at the end of 2018. To that end, divorcing parties will be better off financially finalizing their divorce judgment before 2019. Divorce judgements filed on or after 2019 will require the payer of spousal support to pay the taxes on that income, rather than allowing it to be shifted to the recipient of that support, who will usually have a lower marginal income tax rate.   

This tax reform ultimately hurts both parties because although the California courts consider many factors (as enumerated under Family Code 4320) in determining the amount of spousal support to award, the starting point determines the standard of living the parties enjoyed during marriage. The courts then take a portion of the money from the higher earning spouse and give it to the lower earning spouse in the form of spousal support (AKA “Alimony”) to even out the post-divorce standard of living.  Because the government will be taking more in taxes, the payer of support will generally end up paying more, and the recipient of the support will generally receive less.

Divorcing couples may wish to consider the implications of this new law as they move through the dissolution process this year.

Posted in Divorce.