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What Does the Tax Cuts and Jobs Act Mean for 2019 Divorces

According to the Tax Cuts and Jobs Act, the tax deduction for spousal support, otherwise known as spousal support, is no longer applicable in divorce agreements beginning for orders entered on or after January 1, 2019. This means spousal support will no longer be tax deductible for the paying spouse and will not be considered taxable income for the recipient spouse.

While this tax law appears to give recipient spouses higher spousal support since this income is now tax-free, paying spouses are likely to argue they cannot afford larger spousal support awards because a significant amount of that money will be paid to the federal government through taxes. Additionally, some paying spouses could be pushed into a higher tax bracket without the tax exemption. Since less money is now available to be divided among the family unit, the recipient spouse will likely obtain a reduced award compared to when the spousal support deduction was still applicable. In addition, in making support awards, the law requires the court to consider the immediate and specific tax impacts to both parties, so it is very likely that the tax changes will result in changes to the amount of the support awards to take the new rules into account.

For couples who finalized their divorce last year, the new spousal support rules do not apply. Divorce judgments or agreements entered in 2018 will be grandfathered into existing rules, which allows payors to deduct spousal support in 2019 and beyond. However, if a couple decides to modify the terms of their divorce, the new rules will apply.

For couples who started their divorce proceedings toward the end of 2018, it is too late to apply the spousal support deduction.

When it comes to prenuptial and postnuptial agreements, they are often created with the tax exemption in mind. If you have a current, valid prenuptial or postnuptial agreement, have an attorney or financial consultant review the document to see how it may be affected by the new rules.

The IRS stated that nearly 600,000 taxpayers claimed the spousal support deduction in 2015, which was ultimately worth more than $12 billion. Critics of the new tax law claim losing the deduction will make divorce negotiations more hotly contested. This may be true, but time will tell.

If you are interested in filing for divorce in Southern California, contact our Newport Beach divorce attorneys at Bremer Whyte Brown & O’Meara today.