PRESIDENT TRUMP’S DECEMBER 2017 TAX PLAN ELIMINATES DEDUCTIONS FOR ALIMONY PAYMENTS

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The burden of paying spousal support is about to reverse.  That’s because there’s a new tax law called, Tax Cuts and Jobs Act (TCJA), that was passed by Congress in December 2017, that has effectively abolished tax deductions on alimony payments beginning January 1, 2019.  Under the new Tax Cuts and Jobs Act, alimony payments will be neither tax deductible for the paying spouse nor taxable in the hands of the recipient spouse.

This new law will apply to payments that are required under divorce or separation instruments that are:

(1) executed after December 31, 2018, or,

(2) modified after that date if the modification specifically states that the TCJA treatments of spousal support payments (not deductible by the payor and not taxable income tax by the recipient) applies forthwith.

This new alimony provision is not retroactive, and it does not apply to divorces and separation orders entered into before 2019.

Until this new law, paying spousal support could be considered a “win-win” situation for both divorcing spouses.  The payor receives the benefit of a reduced tax obligation and the payee receives the benefit of more income than might otherwise be forthcoming if the payor spouse wasn’t receiving the benefit of the tax deduction.

This change in law could now prove expensive for individuals who must pay spousal support, because the tax savings normally derived from deducting spousal support payments can be substantial for high-earners.  One of the biggest disadvantages of the new tax law is that it could affect the desire of a higher-earning spouse to settle with their dependent spouse, since the deduction acts as a great motivator for the higher wage earner to agree to help support the spouse with less income in the first place.

WINDOW IS STILL OPEN

There is still a window for the payor to receive deductions for spousal support payments, but that window is closing.  If you are involved in divorce proceedings, or you are thinking about divorcing, and you want deductible spousal support treatment for some or all of the payments that you will make to your soon-to-be-ex, the TCJA gives you a huge incentive to get your divorce agreement wrapped up and signed by December 31, 2018.

On the other hand, if you anticipate being the recipient of spousal support, you have a big incentive to put off finalizing your agreement until next year, because the payments will become tax-free to you.

Either way, you should contact a specialist in family law, someone who is experienced in divorce tax issues, to get the best tax results for yourself.  Tax-wise, waiting too long could turn out to be an expensive mistake for years to come.

Lastly, be warned that many otherwise competent divorce lawyers are not up to speed on many of the new tax changes.  So don’t assume that just any family law attorney is capable of guiding you to the best tax results in your divorce.  Do your homework.  Contact a specialist in family law who is up to date on the latest tax changes that might affect you.  Find out who can best represent you regarding your spousal support requirements, and other family law-related issues.

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PRESIDENT TRUMP’S DECEMBER 2017 TAX PLAN ELIMINATES DEDUCTIONS FOR ALIMONY PAYMENTS

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The burden of paying spousal support is about to reverse. That’s because there’s a new tax law called, Tax Cuts and Jobs Act (TCJA), that was passed by Congress in December 2017, that has effectively abolished tax deductions on alimony payments beginning January 1, 2019. Under the new Tax Cuts and Jobs Act, alimony payments will be neither tax deductible for the paying spouse nor taxable in the hands of the recipient spouse.

This new law will apply to payments that are required under divorce or separation instruments that are:

(1) executed after December 31, 2018, or,

(2) modified after that date if the modification specifically states that the TCJA treatments of spousal support payments (not deductible by the payor and not taxable income tax by the recipient) applies forthwith.

This new alimony provision is not retroactive, and it does not apply to divorces and separation orders entered into before 2019.

Until this new law, paying spousal support could be considered a “win-win” situation for both divorcing spouses. The payor receives the benefit of a reduced tax obligation and the payee receives the benefit of more income than might otherwise be forthcoming if the payor spouse wasn’t receiving the benefit of the tax deduction.

This change in law could now prove expensive for individuals who must pay spousal support, because the tax savings normally derived from deducting spousal support payments can be substantial for high-earners. One of the biggest disadvantages of the new tax law is that it could affect the desire of a higher-earning spouse to settle with their dependent spouse, since the deduction acts as a great motivator for the higher wage earner to agree to help support the spouse with less income in the first place.

WINDOW IS STILL OPEN

There is still a window for the payor to receive deductions for spousal support payments, but that window is closing. If you are involved in divorce proceedings, or you are thinking about divorcing, and you want deductible spousal support treatment for some or all of the payments that you will make to your soon-to-be-ex, the TCJA gives you a huge incentive to get your divorce agreement wrapped up and signed by December 31, 2018.

On the other hand, if you anticipate being the recipient of spousal support, you have a big incentive to put off finalizing your agreement until next year, because the payments will become tax-free to you.

Either way, you should contact a specialist in family law, someone who is experienced in divorce tax issues, to get the best tax results for yourself. Tax-wise, waiting too long could turn out to be an expensive mistake for years to come.

Lastly, be warned that many otherwise competent divorce lawyers are not up to speed on many of the new tax changes. So don’t assume that just any family law attorney is capable of guiding you to the best tax results in your divorce. Do your homework. Contact a specialist in family law who is up to date on the latest tax changes that might affect you. Find out who can best represent you regarding your spousal support requirements, and other family law-related issues.

MILITARY HOUSING AND FOOD TO BE CONSIDERED FOR SUPPORT

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In a case of first impression California’s Fourth District Court of Appeal has held that military housing and food allowances are to be taken into consideration when calculating child and spousal support.  In the case, entitled In re Marriage of Stanton 190 Cal.App.4th 547 (4th Dist., Div. 1 Nov. 24, 2010), the court held this to be true even though such allowances are neither taxable nor subject to wage garnishment.

The facts of the case are as follows:

Husband Soloman Stanton had sought to reduce his temporary child support and spousal support orders to his wife, Carol.  Upon divorce, the court had ordered Soloman to pay his wife temporary support for both her and their son.  Soloman was a member of the United States Navy, and, at the time, the court had calculated the amount of support based in part on Soloman’s military allowances for housing and food.

In his request for a reduction, Soloman had argued that because federal law exempts a military allowance from federal tax and wage garnishment, the court had violated the federal preemption doctrine by including his allowances in its calculation.  Under the federal preemption doctrine, Congress can preempt state laws.

However, after the hearing, the San Diego County Superior Court denied Soloman’s request for a reduction.  The Court of Appeal affirmed the trial courts decision.  It held that the federal preemption doctrine does not prohibit the inclusion of a military allowance when calculating either child support or spousal support.  The court opined that the doctrine is inapplicable to family law unless Congress’s intent is clearly contrary to state law.

The Court of Appeal further determined that Congress had not intended for a military allowance to be excluded from child support or spousal support.  In conclusion, the court stated that “the nontaxable status of military allowances does not suggest Congress had any preemptive intent with regard to either child or spousal support.”