Palmer Rodak & Associates
Palmer Rodak & Associates
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Tax changes likely to impact divorce settlements

When getting divorced in California, property division settlements are subject to the laws of community property. However, that does not negate the reality that many negotiations are still needed to come to a final agreement. Many of the decisions that are made during this process generally factor in the long-term tax implications of how select assets or debts are split between the two spouses.

For many decades, when it came time for one person to make spousal support payments to the other, this was often made somewhat more palatable to the payer by acknowledging that these payments are able to be deducted from that person's federal income tax return. In less than one calendar year, that is going to change dramatically. In addition to being required to pay a former spouse, a person will also have to pay income tax on the money paid out in the form of alimony.

It is as of yet unclear exactly how this will change divorce negotiations but it is almost certain to have some impact. Most likely it is expected that people in the position to pay alimony may assert that they cannot or should not pay as much after January 1, 2019 as they would have if the divorce occurred before that date.

The new tax law is just one of many reasons that divorcing California spouses might want to connect with an attorney before making agreements with a spouse so they fully understand the ramifications of their decisions.

Source: CNBC, "Alimony tax changes may scorch divorcing couples," Annie Nova, February 16, 2018

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