Can I Still Deduct Alimony/Spousal Support?

The most profound effect the new Tax Cuts and Jobs Act (TCJA) has had on divorce planning is with regard to taxation of alimony payments. Before TCJA, payments that could be defined under tax-law as alimony would be considered deductible by the payor for federal income tax purposes, while the recipients of alimony would have to report the payments as taxable income.

Under the new rules, however, the payor is no longer be able to deduct alimony payments and the recipient no longer pays tax on the income. This change applies to support or maintenance payments made pursuant to a judgment, written separation agreement or temporary order that is either:

• Executed after 12/31/2018

• Executed on or before 12/31/2018 but modified after that date, if the modification expressly provides that the amendments made by this section apply to such modification.

It is clear that a judgment, temporary order or written separation agreement entered prior to January 1, 2019, falls under the pre-TCJA law and maintains its tax-deductible/taxable status as defined in the judgment, temporary order or written separation agreement. It is also clear that any modifications made after December 31, 2018, would need to expressly provide that TCJA was applicable in order to lose the tax-deductible/taxable status from the prior order.

For temporary orders, judgments or written separation agreement that contain initial orders for alimony or spousal support entered after December 31, 2018, the new TCJA law applies and spousal support is not tax-deductible to the payor and not taxable to the payee.

What is unclear is whether a pre-December 31, 2018 order, judgment or separation agreement that is changed by a subsequent judgment of dissolution would qualify to the tax treatment specified in the pre-December 31, 2018 order. Whether the pre-TCJA or TCJA tax regulations will apply to these judgments is a matter yet to be decided.

In addition, California has not conformed to the new law and parties could find themselves in a situation where under California law they would have deductible and taxable alimony but for federal purposes, the alimony paid would be nondeductible and nontaxable.

For a consultation on your specific situation, Call Rachel Castrejon.

Categories: Divorce

About the Author

Rachel Castrejon opened her own law practice immediately after graduating from Loyola Law School and passing the California Bar exam in 1998. When she first opened her practice, she handled a variety of cases including wrongful termination, criminal appeals and family law matters. Ultimately, she chose to practice exclusively in the area of Family Law because she likes helping her clients through a very emotional process. Rachel’s goal is to help her clients through one of the most difficult times in their lives – the breakup of their family. Rachel understands the importance of achieving a resolution that is good for the entire family, particularly the children involved.

Learn more about Rachel

Disclaimer: The information and examples provided herein are based on the laws and regulations at the time of writing. Prior to deciding how to hold title in your property, you should consult with an accountant, probate attorney or family law attorney to determine the best way to hold your property for the purpose you want to accomplish.

Confused about Divorce Options?

Are you or your spouse thinking about divorce, but have no idea how to go about it? Here are some divorce options.

1. Mediation

You and your spouse can work with a mediator to help you reach an agreement on any issues in the case (i.e. child custody, child support, spousal support, property division, etc.). A mediator can also prepare all the paperwork that needs to be filed with the court to complete the divorce process. Rachel is a qualified mediator and works as a neutral intermediary to facilitate an agreement between the two parties involved. Customarily, and presuming that both parties provide financial information in a timely manner, a case can be resolved in two or three sessions that last approximately two hours each. Mediation can result in a substantial cost savings to the parties. Mediation is also beneficial because, instead of letting the court decide things like how to divide your property or how much time you should spend with your children, you and your spouse can decide. If you would like to set up a consultation regarding mediation, please contact us.

What if the other spouse/parent will not agree to mediation?

Both parties must agree to mediate for mediation to take place. Often, one spouse/parent may not have come to terms with the end of the relationship and it is difficult to convince them to start the mediation process. See the section below “What if the other spouse/parent will not accept that you want to breakup?” for further strategies for getting the case into mediation.

2. Litigation

Litigation is a term that is used broadly in family law to describe cases in which immediate orders are necessary because the parties cannot reach an agreement. This would include circumstances where one spouse is the financial support for the family and is not providing support to the other spouse or the children, domestic violence situations, cases in which the children are at risk with a parent because of drug or alcohol abuse, or where one of the party’s is misusing community property. Whether you are the spouse/parent who receives the court filing or spouse/parent who needs to file a request for order with the court, Rachel will assist you in addressing your immediate concerns and assessing the best possible strategy for the resolution of the issues.

What if the other spouse/parent will not accept that you want to breakup?

Hiring an attorney to start the divorce or parentage process can also be helpful in a case where one of the spouses or one of the parents in non-marital parentage action has not come to terms with the fact that the relationship is over. In these situations, it may be difficult to get the other party into mediation or to even have a discussion with the other party about how to resolve property, support and child custody issues. In such a case, it can be helpful to file a Petition for Dissolution of Marriage or a Parentage action to move the case forward. Rachel tries to approach these cases in the least contentious manner possible by filing the paperwork with the court and providing options to the other party for resolution through mediation. This will usually prompt the other spouse/parent to retain an attorney which often facilitates the resolution of the issues.

If I hire Rachel as my attorney, does that mean we have to go to court or litigate?

If you hire Rachel as your attorney, you do not necessarily need to go to court/litigate unless you are unable to reach an agreement either through mediation or other settlement strategies. Rachel makes every effort to resolve cases short of filing requests for order with the court. To that end, she works with opposing counsel to try and resolve as many issues as possible. Rachel also represents clients who are working with mediators. In this capacity, Rachel acts as an advisor to the client so they are informed of their rights and understand whether a settlement agreement is a reasonable resolution in their case.

Categories: Divorce, Mediation

About the Author

Rachel Castrejon opened her own law practice immediately after graduating from Loyola Law School and passing the California Bar exam in 1998. When she first opened her practice, she handled a variety of cases including wrongful termination, criminal appeals and family law matters. Ultimately, she chose to practice exclusively in the area of Family Law because she likes helping her clients through a very emotional process. Rachel’s goal is to help her clients through one of the most difficult times in their lives – the breakup of their family. Rachel understands the importance of achieving a resolution that is good for the entire family, particularly the children involved.

Learn more about Rachel

Disclaimer: The information and examples provided herein are based on the laws and regulations at the time of writing. Prior to deciding how to hold title in your property, you should consult with an accountant, probate attorney or family law attorney to determine the best way to hold your property for the purpose you want to accomplish.

Tax Reform: How it will Impact Spousal Support/Alimony Payments

If passed, the new tax reform bill introduced by Republicans will have a profound impact on couples getting divorced because the right to deduct alimony (spousal support) payments will be eliminated.

Under current law, the spouse who pays alimony is allowed to deduct the amount of alimony paid from his or her income making it tax deductible. The recipient of the alimony must report the alimony as income for tax purposes. Under the current law, proposed section 1309 of the tax reform bill eliminates the deduction for payment of alimony (https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf).

Though the proposed amendment would not affect alimony/spousal support orders that took effect prior to December 31, 2017, it would affect all orders made after January 1, 2018. If the bill is passed, it will have profound effects on the amount of alimony a former spouse is able to pay. The cost of divorce is already high and the cost of maintaining two households instead of one is often unmanageable. The elimination of the tax deductibility of alimony will only increase the difficulty in resolving divorce matters. It will be imperative that the divorcing couple devise creative solutions to maximize the financial benefits for the family.

Categories: Divorce

About the Author

Rachel Castrejon opened her own law practice immediately after graduating from Loyola Law School and passing the California Bar exam in 1998. When she first opened her practice, she handled a variety of cases including wrongful termination, criminal appeals and family law matters. Ultimately, she chose to practice exclusively in the area of Family Law because she likes helping her clients through a very emotional process. Rachel’s goal is to help her clients through one of the most difficult times in their lives – the breakup of their family. Rachel understands the importance of achieving a resolution that is good for the entire family, particularly the children involved.

Learn more about Rachel

Disclaimer: The information and examples provided herein are based on the laws and regulations at the time of writing. Prior to deciding how to hold title in your property, you should consult with an accountant, probate attorney or family law attorney to determine the best way to hold your property for the purpose you want to accomplish.