For decades, when couples divorced, it was the man who paid support to his ex-wife mainly because men earned higher incomes. Typically, women were stay-at-home moms or in lower-paying jobs, and she would receive alimony when the marriage ended. Today, in California and many other states, women are now holding more powerful, higher-paying positions with many being the family breadwinner.
Tax-saving opportunities may still be available under The Tax Cuts and Jobs Act. Couples who are negotiating an alimony agreement as part of their divorce may consider having pretax retirement savings transferred instead. Transfers can be through property division, lump-sum payment, IRAs and 401(k) plans. In California and other states, couples may find more creative tax-saving ways to pay alimony.
A divorce can shake up emotions that can sometimes lead to irrational decision-making about finances. Taking proactive steps to protect monetary assets before filing for divorce may help prepare for better financial decisions during the divorce. Experts in California and other states suggest closing joint accounts, considering alimony and researching retirement accounts.
Studies show that over the past ten years more and more women are in powerful positions in the workforce and are earning more money than men. Because of this surge in their careers, some women are also paying out huge amounts of alimony to former husbands. In California and other states, serious money deemed "manimony" is being raked in by ex-husbands.
For the past 75 years, spousal support payments have been a tax deduction for the payer. Now, because of a new tax code, alimony can no longer be deducted, and taxes will not need to be paid by the recipient. California and other states set their own rules about how much alimony is paid and when payments should end. Across the country, there is no consistency regarding alimony.
During a divorce, the last thing people think about is insuring the person whom they ousted from their life. In certain situations, it makes good financial sense to insure the other party. With alimony payments, courts may order spouses who pay to have life insurance policies naming the ex-spouse as the beneficiary. California and other states require the person's consent to be named on a policy.
Divorce is undoubtedly one of the most stressful times in a person's life. Just as stressful is the financial impact and the changes to one's tax structure. Experts recommend early preparation for adapting to those changes. In California and other states, payments for alimony and child support should be structured in a tax-savvy way.
The House Republican tax plan proposes eliminating the tax deduction for ex-spouses making spousal support payments effective Jan. 1, 2018. Current alimony recipients will no longer be required to pay taxes on any payments made to them. In California, the proposed bill may increase a family's tax burden causing serious financial concerns. If the bill passes, ex-spouses will be ready to renegotiate their alimony agreements with the court system.
The process of getting divorced can be a draining experience -- emotionally, mentally and financially. While California residents are obligated to approach property and asset division in a certain manner, other issues such as alimony may be more difficult to agree to, especially in a contested divorce. Now, due to an upcoming change in the tax codes, alimony discussions may become even more contentious.
Nearly half of marriages end in divorce, and the financial fallout may be significant. Couples not only face the task of emotional separation but must also confront the financial aspects. In California, legal advice regarding alimony, child support and even life insurance is critical, especially if children are involved.