Every divorce comes with tax implications. It is important to understand how federal and state law will treat your divorce and related court orders, such as a spousal support and child support order, in terms of taxation. Otherwise, you may be facing adverse tax consequences after your divorce or legal separation.
Taxation should play a role in settlement negotiations with your spouse, as it can impact your financial resources after the divorce. You may be able to catch a break, however, with tax-deductible payments. Whether or not the money that you pay to or receive from your ex after a divorce is tax-deductible depends on the circumstances.
Spousal Support (Alimony) Is Tax-Deductible
Spousal support – also known as alimony and spousal maintenance – is tax-deductible for the payor and taxable for the recipient under California state law. This means that the recipient must claim spousal support payments as taxable income on Line 11 of Form 1040. The paying party can list spousal support as a tax deduction by including it on Line 30 of Form 1040. For alimony to be eligible for a tax deduction in California, however, five things must be true:
- The recipient is not treating spousal support as child support.
- The divorce or separation agreement does not state that these payments are anything except spousal support.
- The payor is not responsible for making payments after the death of the recipient.
- Both parties are not living in the same household when making or receiving payments.
- The payments are made by cash, check or money order.
Spousal support payments are also tax-deductible for the paying party under federal law if the agreement was made prior to 2019. If the divorce separation agreement was executed after December 31, 2018, however, spousal support may not be tax-deductible for the payor or listed as income for the recipient. This is because the law changed as of January 1, 2019, under the Tax Cuts & Jobs Act of 2017.
Child Support Is Not Tax-Deductible
Unlike spousal support payments, child support is not tax-deductible, as stated from our experienced child support lawyer in Orange County. The law considers child support an expense designed to provide financial assistance to a child. Thus, it is an extension of parental responsibility. The parent receiving child support also does not have to list it as income for tax purposes. Child support payments are tax-neutral under both state and federal law.
Protect Yourself by Planning Ahead
Spousal support and child support are two elements of a divorce case that are often contested between the parties. One consideration that you must remember is the tax implication of both types of agreements. It is critical to get sound tax advice from a tax professional and a divorce attorney in Orange County before signing a divorce settlement agreement. Planning ahead with assistance from an attorney can allow you to fully understand the tax consequences of your divorce and protect yourself.
A divorce lawyer can help you frame your settlement agreement with taxes in mind from the beginning to better protect yourself financially in the future. The specifics are important in a divorce settlement and can make a big difference when it comes to your tax obligation. Your attorney can give you sound advice about how to structure your agreement to help with taxes and benefit from available deductions as much as possible.
A lawyer can also help you determine your filing status, correctly fill out your W-4, learn how to list child support and alimony payments on your tax forms, and connect you to text professionals for further assistance. For more information about how a divorce attorney can help you with the taxation of your divorce settlement or court order, contact Boyd Law to request a consultation.
Areas Boyd Law Serves In Orange County
Boyd Law proudly extends its presence to numerous locales throughout Orange County, encompassing:
