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Proposed Tax Law Change Would Have a Substantial Effect on Alimony Payments

Pasadena divorce lawyers encourage clients to consider the tax consequences of divorce in order to minimize the impact ending their marriage will have on their financial futures. A recent proposed change in the tax treatment of alimony payments would have a significantly negative effect on high earners ordered to pay spousal support after divorce.

The House tax overhaul plan announced on February 24 by House Ways and Means Committee Chairman, Dave Camp, proposes to eliminate what supporters call a “divorce subsidy” by getting rid of regulations that let alimony be deducted by the payer and counted as income by the receiving spouse. Supporters of the bill say that the current system allows a divorced couple to achieve more favorable tax results than a married couple and that the changes would raise $5.5 billion for the federal government over the next fifteen years.

The change in the tax treatment of alimony would raise funds for the federal government because currently, the receiving spouse pays taxes at a lower rate on the income than if it were counted as income by the paying spouse. Alimony is typically only provided in divorces where there is a significant income disparity between spouses, which would place them in dramatically different tax brackets.

Those against changing the current tax treatment of alimony payments argue that divorce already carries a tax penalty. The higher earning spouse loses at least one exemption and must pay post-divorce taxes at the higher single rate. The higher earning spouse is also faced with the challenging task of financing two households, which creates additional burdens that current tax laws only partially relieve.

House Republicans have said they have little expectation the bill will come up for a vote this year. The bill has many other provisions that are somewhat controversial, including trimming the mortgage-interest deduction, ending the deduction for state and local sales taxes, and reducing a number of breaks for the highest wage earners.

If the bill were to pass, however, the change in tax treatment of alimony payments would only apply to divorces occurring after 2014.

How Can We Help?

Please call our office at (626) 683-8113 or email us at info@PasadenaLawOffice.com if you have questions about spousal support payments and your divorce. Our skilled Pasadena divorce attorneys are eager to advocate for your interests throughout the settlement process.

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