Californians considering divorce should be aware that the tax treatment of spousal support will change significantly beginning January 1, 2019.
Current Tax Treatment
Currently in California, the person receiving spousal support must pay income taxes on that support, while the person paying spousal support gets to deduct those payments on their tax returns.
As a result of this tax treatment, sometimes the person paying spousal support will agree to higher payments, since it lowers their taxable income. In turn, the recipient receives more spousal support, which also improves their financial situation. Essentially, both parties can benefit.
Beginning on January 1, 2019, the taxability of spousal support will reverse.
2019 Tax Treatment
However, beginning on January 1, 2019, the taxability of spousal support will reverse. An individual paying spousal support will also have to pay taxes on those payments, meaning spousal support will become “more expensive”.
This also means the individual receiving spousal support will likely receive a lower amount, since the other spouse has less money available to pay them.
What do my spouse and I need to know if we’re headed towards divorce?
- First, in order to maintain the current tax treatment of spousal support, your divorce must be finalized on or before December 31, 2018.
- Second, California requires a “6 months and 1 day” cooling off period, which means in order to finalize your divorce before the end of the year, the Petition must be filed and served no later than June 30, 2018.
- These tax changes also apply to partner support and family support.
- Child support will remain non-taxable and non-deductible.
Epiphany ADR provides a faster, less expensive alternative to litigated divorce.
Epiphany ADR provides divorce mediation services. Many of our clients are able to resolve all of their issues in less than six months, well in advance of the earliest date their judgment can be made final.
Schedule mediation NOW so initial papers can be filed and served by June 30, 2018.
Lisa L. Fiance is a California family law attorney, divorce mediator, and the owner of Epiphany ADR. The information contained in this article is intended as general information and does not constitute legal or tax advice.