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How post-divorce taxes are changed by the TCJA

On Behalf of | Oct 9, 2018 | Divorce

Some California couples who are getting a divorce may ultimately face higher costs as a result of the Tax Cuts and Jobs Act passed at the end of 2017. Among other changes, the act changed how exemptions for children are claimed on taxes and how alimony is treated.
Divorced parents in the past may have used IRS form 8332 to take turns claiming a deduction for their child, but this will no longer be possible. Instead, the single parent who pays more than half of all household expenses and has the child in the home more than half the time can claim a head of household deduction as well as the child tax credit. The child tax credit may be tradable, but the IRS has yet to issue guidance as to whether this is the case. Therefore, divorcing parents may want to include in their agreement that this can be traded if regulations allow it.
Alimony recipients who sign divorce agreements starting in 2019 can expect lower payments according to experts. Alimony will no longer be tax-deductible for the payer, and the recipient will no longer pay taxes on alimony. This rule is not due to sunset in 2025 like other elements of the tax act, but couples may still want a flexible divorce agreement in case Congress makes changes.
Concerns about these higher costs could affect negotiations over child and spousal support as well as property division. In California, community property laws require most assets acquired since marriage to be split 50/50 although couples do have some flexibility in how they approach this division. For example, instead of splitting all marital property, some opt for one person to keep certain assets while the other person keeps others that have an equal value.