For Californians who divorce after the end of 2018, alimony payments will not be tax-deductible or tax-payable. This is one of several tax changes brought about by the Tax Cuts and Jobs Act, which was passed in late 2017, that could affect the finances of divorcees.
Until the end of 2018, divorce agreements will operate under the old rules in which alimony was tax-deductible for payers. This will change starting in 2019, and it will not sunset in 2025 unlike other many other elements of the tax bill. As a result of the tax change, experts believe that most recipients will get less alimony.
There are also changes in how exemptions can be taken for children. Instead of parents using IRS form 8332 to take turns claiming the children on exemptions, there will be a significant Head of Household exemption. This will apply to single parents who have the children in the home more than half the time and pay more than half the expenses of the household. Parents may want to include a provision in the divorce agreement that makes the child tax credit, which can be claimed by the HOH, tradable if IRS regulations allow this. The divorce agreement may need to be written in a way that is flexible enough to accommodate other tax changes as well.
People who are getting a divorce should also take other economic considerations into account. For example, since California is a community property state, most debts and assets acquired since marriage by either party are considered marital property. However, couples can negotiate many different types of arrangements that do not necessarily result in a 50/50 split. In some cases, assets will be costly or difficult to split. Therefore, a divorce lawyer may recommend that each person keep certain assets.