It may seem hard to believe that it's been almost a year since the new tax law was signed by President Trump. The new law does away with tax deductions for spousal support after the end of this year. However, you still have a short time to get your agreement on record and keep the old rules in place.
As long as an alimony agreement is finalized through a separation agreement or divorce before the end of the year, those paying spousal support can still deduct it from their income taxes. For agreements finalized in 2019 and moving forward, alimony is no longer deductible.
This change will have the most significant impact on people in higher tax brackets. The higher a person's tax rate, the higher percentage of alimony they've been able to deduct. That's taken some of the sting out of having to pay spousal support for many people. As one attorney notes, "The deduction, as it stands, is a great motivator to encourage the higher wage earner to agree to help support the spouse with less income."
Now, many wealthy spouses will likely fight harder to minimize the amount of support they'll have to pay. This will mean less money going to lower-earning spouses. Recipients whose divorces are finalized after Dec. 31, 2018, will no longer report their spousal support as income. Instead, it's treated as a transfer of assets.
Whether you're working toward finalizing your divorce settlement before the new year or you know it won't be completed until 2019, it's essential to understand the impact of any spousal support agreement or order on your taxes and overall financial situation. It's wise to consult with tax and financial professionals as you and your California family law attorney work out your divorce settlement.