How Will the New Tax Law Affect California Alimony?
As many of you know by now, the most comprehensive tax law in 30 years was passed by Congress this week and signed into law by the President. Of greatest impact to those going through a divorce, alimony — known also as spousal support — will no longer be tax deductible for the payor and taxable for the recipient, at least under the federal system.
Although the change in this part of the law does not go into effect until January 1, 2019, California judges will have to consider this change if they order spousal support in any particular case. This is because Family Code section 4320, subd. (j) requires a court to consider, among other things, “[t]he immediate and specific tax consequences to each party”. Up until now, a court could comply with this requirement by merely indicating that “spousal support is deductible to the payor and taxable to the recipient”. Now, it seems, the immediate tax consequence might be no consequence. After all, paying spousal support will just be like paying any other type of debt. In that respect, at least for purposes of talking about taxes, spousal support will be like child support, which already is non-deductible.
What about a modification of alimony? The new law appears to say that modifications after 2019 will not affect decrees entered before 2019 unless the parties use language in any agreed modification to say that the new law is going to apply. That means a payor who is already divorced (or gets divorced in 2018) and who is able to deduct spousal support will not be able to successfully argue for a new order lowering or eliminating spousal support on the basis of taxes, because, for that person, spousal support has always been tax deductible and always will be. Of course, as with any case, there might be other reasons unrelated to taxes to ask a court to lower spousal support.
The same logic applies to recipients of alimony or spousal support. For them (and again, “them” means people divorced before 2019), spousal support has always been taxable income. So they cannot complain, with success, that spousal support should increase because the new law will not apply to them. Again, however, there may be other reasons to have spousal support go up.
These are important points to remember, because under California divorce law, a judge faced with a modification request (from either the payor or the recipient) has to apply all of the factors listed in Family Code section 4320, which includes the one factor mentioned above concerning tax consequences.
As I said the other day, San Diego divorce attorneys are still figuring out the new law. So, stay tuned. There may be more information in the months and years to come. And remember to speak with a competent tax advisor about all of this. After all, divorce is stressful enough without having to worry about dire tax consequences.
On that note, Happy Holidays and thanks for checking out the web site of the Law Offices of Andy Cook.