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The TCJA and divorce

California couples who are getting divorced should be aware of how the changes brought on by the passage of the Tax Cuts and Jobs Act can impact a marital separation. The new laws will institute changes in the treatment of child support and alimony that may result in divorces finalized after 2018 being more expensive.

One important aspect of the TCJA for divorcing couples is the elimination of the value of the dependent and personal exemptions. The legislation also increased the amounts of the standard deductions. Being able to claim Head of Household status, which leads to a greater deduction, is likely to be a major discussion point during divorce negotiations.

Parents who are able to file as HOH will also be able to claim the Child Tax Credit, which has been expanded to $2,000 for each qualifying child. The newly single parents will find that the tax credits have more value than exemptions. While credits directly lower the amount of taxes that are owed, exemptions only lower taxable income.

Alimony is another part of divorce that has been impacted by the TCJA. Beginning in 2019, new divorcees will not have to include any alimony received as part of their taxable income. Furthermore, exes will not be able to deduct any alimony paid. Alimony will have no income tax consequences and will be treated as a simple transfer of property.

A family law attorney may advise a client seeking a divorce about their legal options. Legal counsel could explain how the passage of the TCJA will be a factor in the negotiation of divorce settlement terms. If necessary, litigation may be used to resolve disputes regarding child support and alimony.

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