New tax law may impact divorce negotiations

The recent tax law will impact divorce negotiations, here's how.

Divorce requires the division of property. In some cases, it can also result in the payment of alimony, also known as spousal support in California.

How are spousal support payments calculated in California?

The process used to determine alimony can vary by state. In California, the courts take many factors into consideration. Three of the main considerations generally include:

  • Time. The court will consider the length of the marriage or partnership when making a spousal support determination. If granted, spousal support is generally for a set period of time. The law encourages courts to use a "reasonable period" standard, but the judge has discretion to adjust the time as he or she deems fit. The court generally defines a "reasonable period of time" as one half the length of the marriage or partnership.
  • Standard of living. The court will also consider the standard of living that was present during the marriage. The court may use this as support for a spousal support payment to help maintain this standard of living after the divorce is finalized.
  • Income. The current earnings as well as future earning capacity can also play a role in the spousal support determination. The judge will look at any marketable skills that either party could bring to the job market as well as an analysis of the job market for those skills.

The court will take additional factors under review. This can include the health of both parties as well as if one party will take on the role of the primary caregiver for children.

What role do taxes play in spousal support determinations?

In the past, spousal support payments were generally tax deductible for the payor. The person receiving the payment would then account for the spousal support on his or her income tax return.

The passage of the new tax law has changed this. It removed the deduction for spousal support from federal tax returns. This change goes into effect on any divorce settlement agreement that is signed after December 31, 2018.

The change will likely impact spousal support negotiations. This change is one example of the many considerations to consider when navigating a divorce. Those going through a divorce are wise to account for this change. Anyone going through a divorce that does not take tax implications into consideration during negotiations could face financial surprises at tax time. Legal counsel can mitigate this risk. An attorney experienced in divorce can tailor a strategy to meet your needs and mitigate the risk of future financial surprises such as this.