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Generally speaking, most people don't check the tax code before deciding to get a divorce. But 2018 might've been a little different. The new tax bill made significant changes to how alimony is taxed, which had many people who might've been considering a divorce trying to rush the process before the statute went into effect in 2019.
The new year has brought new divorce laws -- beyond just taxes -- and new considerations for soon-to-be exes. Here's a short roundup of those laws and what they might mean for your divorce.
It was one of the first things we noticed back in November 2017 when the tax bill was first proposed -- the so-called "divorce subsidy" was going to be removed, meaning alimony would no longer be tax deductible for the ex-spouse paying the alimony, but would also no longer be classified as taxable income for the ex-spouse receiving the alimony payments. Shifting the tax burden from the person receiving to the person paying.
A year later, we broke down what the new tax law could mean by the numbers:
Let's say spouses divorce in 2017. Spouse A makes $250,000, and Spouse B makes $50,000. In the divorce agreement, ex-Spouse A must pay ex-Spouse B $50,000 each year. When it comes time to pay taxes, A would pay taxes on a gross income of $200,000, B on $100,000. But now that's about to change. Take that same couple, divorcing in 2019. Taxes are paid on just the earnings, without taking the alimony into effect. A would pay taxes on $250,000, and B would pay taxes on $50,000. Imagine how A feels, making $250,000, losing a chunk of it to taxes, and then losing another $50,000 to alimony.
A's of the world? Not so happy. But B's would get to keep about another $11,350 that would have gone to federal taxes
The holidays are always stressful, and there is a spike of separations that follow the holiday season. But this divorce season, considering the new tax law, might've been even more busy. Unhappy couples and their divorce lawyers were scrambling to finalize divorces and spousal support settlements before the law went into effect January 1. Unfortunately, if you haven't signed all the divorce papers yet, or you're modifying an existing alimony agreement, you're subject to the new tax law.
But enough about money. What about what really matters in divorce: Who gets the pets? That was normally left up to the parties, but California recently codified the concept of "Best Interest of the Pet." Now, custodial rights of the pet can be sole or joint, can include visitation, and can (and probably will) be litigated just like child custody and alimony.
If you're wondering where these new laws leave your divorce, consult with an experienced divorce attorney.