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Divorce settlements hampered by new tax law rules

Divorce law may get a bit more difficult for practitioners in California and elsewhere after the end of the year. It may also get a bit more expensive for some clients to get a divorce at that time. The Tax Cuts and Jobs Act passed by Congress eliminates the alimony deduction for payers as of Jan. 1, 2019.

The deductibility of alimony to the paying spouse has always been a convenient way to get more dollars to the less wealthy spouse. Although the recipient would have to pay an income tax on the alimony received, the recipient was likely in a much lower tax bracket than the individual paying the alimony. Family law attorneys are familiar with the incentives encouraged by the rule, but now they must look for new ways to structure such matters so as to benefit the parties.

As the new system becomes effective, however, it appears that there will be growing pains associated with drastically-changed rules that will take some time confronting and understanding. It may be that other areas of domestic economic planning between parting spouses will take up the slack left by the departing alimony rule. One immediate negative effect of the changes is predicted to be a reluctance by alimony payers to continue making those payments.

Negotiating a family law settlement agreement in California after the end of this year will be a greater challenge for all involved. Only time and practice will tell the story of whether family law attorneys will succeed in finding new incentives for their clients. At this time, they are attempting to seek whatever alternative incentives may exist so that they will have an arsenal of benefits to encourage the client to make an informed decision. A person seeking a divorce can help by being fully transparent with the divorce attorney and informing the attorney of the most important points necessary for acceptance of a settlement agreement.                                 

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