Divorced couples have always struggled when it comes to figuring out how alimony payments will be allocated. Now that the new tax bill has gone into effect, divorced couples will also have to deal with new changes to the amount of alimony they can claim on their taxes.
Before the new tax bill was signed, alimony was tax deductible for the payer, and the recipient would pay income tax on it. This has been consistent for that past 75 years. Under the new tax code, this consistency will end, which means couples who will be getting divorced after Dec. 31 of this year, will no longer be allowed to deduct for the spouse who pays alimony.
Lawyers are now expecting that the new tax code changes will make divorces even messier. For one, California uses special software to calculate alimony. With the new tax changes, the state’s software system will become obsolete. The tax relief for alimony payers was a tool that many lawyers used to get divorce negotiations to move along faster without the need to go to court. However, many attorneys believe there will be a substantial increase in the amount of cases that end up requiring courtroom litigation.
Divorce often creates two households that are unable to function as cheaply as they did as a single household. Under the new tax code, the relief from tax deductions that once helped to alleviate these finical burdens will be gone. Without the benefit of being able to deduct alimony, divorce will become less affordable for many couples, which might force them to stay together in an unhappy marriage simply because is it too expensive to separate.
The new tax changes will also make it difficult for the alimony recipient to contribute to their retirement account. Because retirement contributions usually have to come from taxed income, it will be harder for people to save for their contributions.
Now that you know about the new tax code changes, you are probably wondering if you should change your existing divorce agreement. If you want to change your divorce agreement, you should consult with our divorce advocates to talk about how modification might help you save money. If you think you will be divorcing your spouse, you probably want to rush to have your divorce finalized before the end of 2018 to avoid any complications that might arise from the new tax laws.
Contact our team of La Mesa attorneys to get help with your divorce agreement today.