Divorce is not generally an experience that people in California try to rush through, especially when they have to come to agreements on how to separate their joint assets and liabilities. This process can take some time and requires concessions and negotiations along the way. However, an imminent change to the federal tax laws may well be changing all of this, at least for the rest of the 2018 calendar year.
A divorce settlement may well have tax implications for one or both spouses. These implications may be favorable or not. Alimony is one element of a divorce agreement that definitely carries with it some tax implications. For approximately 70 years, the person who must make spousal support payments has received a tax deduction for these funds and the person who receives the money must claim it as income on a tax return, thereby paying the taxes.
It is common that the person who receives alimony is in a lower tax bracket than the payor, thereby resulting in an overall lower tax bill than if the payor was responsible for the taxes. According to Bloomberg, effective January 1, 2019, it will be the person paying alimony who will assume income tax responsibility on that money. As such, the overall tax bill for the same amount of money is likely to increase.
This change is not ultimately favorable to either spouse as it may reduce the combined pool of money and make people less willing to agree to paying alimony. Many couples are believed to be working hard to complete their divorces before the end of 2018 to take advantage of the current alimony tax laws.