President Trump’s tax reform bill, which was recently signed in to law, includes many changes to the United States Tax Code.
Some of those changes will in all likelihood directly affect California Family Law cases including divorce cases, custody cases and support cases. Child support and spousal support are two of the significant areas of Family Law likely to be affected by the new tax changes. Specifically:
Child Support: Currently the California guideline child support calculator uses a number of factors, including each parent’s tax bracket, filing status, deductions, including mortgage interest and property tax deductions, and personal exemptions to determine the amount of child support owed. Under the new tax laws, nearly all of those factors have been modified. The tax brackets have been revised such that many people will enjoy a lower tax rate. Additionally, the standard deduction has roughly doubled for all taxpayers. However, the personal exemption for the taxpayer, his/her spouse and children, has been eliminated. Additionally, the amount that can be deducted for mortgage interest has been reduced to include debt of up to $750,000, down from $1M. All of these changes may affect how much a supporting parent could have to pay for child support.
Spousal Support: The new tax laws eliminate a taxpayer’s right to deduct spousal support payments. Similarly, a supported spouse no longer has to claim spousal support payments received as income. This may affect how support orders are structured and could impact settlement negotiations surrounding the amount of spousal support and spousal support “buy-outs”.
It is important to note that these changes did not go in to effect until the 2018 tax year. Additionally, this article should not be considered tax advice. It is always important to speak with a tax expert regarding your personal or business tax situation, in addition to seeking legal advice regarding your divorce, custody or support case.
At Argyris Mah, LLP, we can guide you through any family law issues you may have. Contact us to schedule a free telephone consultation at (408) 564-5674.