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Why did the new tax law impact alimony?

If you are one of the many California residents who is contemplating a divorce, you will no doubt be interested to understand how the new tax law might impact you and your divorce settlement. If you might be responsible for paying spousal support to your partner, whether your divorce is finalized this year or next can make a big difference in what you might end up agreeing to. If you might be eligible to receive alimony, the timing of your divorce agreement may make a big difference in the amount of money you actually receive from these payments.

As explained by Forbes, under current laws, it is the spouse who receives alimony who is responsible for paying income tax on those dollars. Under the Tax Cuts and Jobs Act, it will be the spouse who pays alimony who will be responsible for paying income tax on those dollars.

For a paying spouse, this might eat up an even larger share of what money they have left to support themselves on and therefore limit the amount they would be willing to pay in alimony. For a receiving spouse, this may then reduce what they ultimately receive. For the government, the hope is that it will generate an additional $8 billion in taxes within a decade. This is because the spouse who pays alimony is usually in a higher tax bracket than the one who receives it.

This information is not intended to provide legal advice but is instead meant to give residents in California an overview of what may be behind the recently announced changes to alimony taxation that will take effect next year.

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