Post – December 20, 2017
THE EFFECT OF THE NEW TRUMP TAX PLAN ON DIVORCED PARENTS IN CALIFORNIA.
Once the tax bill is signed into law by President Trump on December 20, 2017, everyone paying or receiving child and/or spousal support in California will be in for a very rude awakening. The new law will open the flood gates of litigation over the continuing propriety of everyone’s existing support obligations. The new law will cause substantial changes to most people’s net incomes through, among other things, the elimination of itemized deductions and increased standard deductions just to name a few. While some people will benefit from these changes, others will suffer from them. This will result in the filing of countless court proceedings seeking to make appropriate adjustments in support calculations costing everyone involved thousands of dollars in attorneys’ fees and lost time.
As California is the only state in the country to calculate child support obligations based upon each parent’s net income, all state approved support software will have to be re-written before any family court can make an accurate support award. There is no possibility that such work can be done before the Trump tax law takes affect on January 1, 2018. This will necessitate multiple court appearances for everyone receiving a child support award before the revisions are implimented, exponentially increasing their attorney’s fees, and resulting in lengthy delays by an under-funded court system struggling to accommodate the huge need for additional hearings.
An even more difficult scenario will be the new law’s complete reversal of the taxability of spousal support payments under the existing system. Currently, payments made by a supporting spouse are entirely deductible from his or her income and taxable to the receiving spouse. This permits the one paying support to reduce their overall tax bracket, resulting in a substantial tax savings while only slightly raising the tax bracket of the recipient of the support. It was a win-win situation for both spouses.
However, effective January 1, 2019, all new spousal support orders made or prior orders that are subsequently modified will no longer be deductible by the payor or taxable to the recipient. This reversal on the taxability of support will greatly increase the tax burden on spouses paying support and reduce the amount received by the ones in need of financial assistance. In addition, this will cause everyone involved to incur significant amounts of attorneys’ fees just to mitigate the effects of the new law. This is a very steep price to pay for the residents of California already suffering the effects of a costly divorce.