In December of 2017, President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law.

This tax reform bill has brought sweeping changes, altering the federal tax code in a wide range of different ways. For those going through a divorce, the tax bill may have some unexpected implications. Beginning January 1st, 2019, alimony payments will no longer be tax deductible for the person who is paying alimony. Similarly, alimony will no longer be considered taxable income for the person who is receiving spousal support payments. This is a reversal of the previous rules. For decades, alimony has been tax deductible to the payer and taxable income for the recipient. California has not yet followed the federal changes, so there are presently two rules concerning taxation of spousal support.

For those who have gotten a divorce and are currently paying alimony, rest assured: this law does not apply retroactively.

If your divorce was finalized before January 1st, 2019, and you are paying alimony, your taxes will not change, either in the past or in the future. This law applies to divorce cases settled or finalized in 2019 and beyond. All marital separations finalized in 2018 or prior years will still be subject to the previous tax regime.

As noted by Sonoma County family law attorney Charles D. Stark, “In California, spousal support is not awarded in every divorce case. The award depends on a number of different factors, including the length of the marriage, the current and future economic prospects of each party, and each partner’s accustomed lifestyle. When negotiating an alimony settlement or dealing with this issue in litigation, couples should take a comprehensive view. Taxes must be considered.”

On the surface, it may appear as though the new tax law simply flipped the taxation of alimony.

The paying spouse loses their tax benefit. While the receiving spouse is no longer taxed. When applied, the new law is likely to have the net effect of taxing ‘alimony’ at a higher overall rate, thereby bringing in more income for the federal government and potentially reducing the amount of income available in divorce settlements. This is because the payer of alimony is almost always the higher income spouse; and therefore typically taxed at a higher rate.