If you are divorcing after several years of marriage, alimony questions may arise to account for unequal incomes. This is especially likely in marriages where one party stayed home to support the other spouse, raise children or see to the home. However, the most recent tax reform forced many couples to rethink alimony.
The New York Times explains that the reform removed the tax break alimony payers received for alimony. This made alimony payments part of the taxable income, while the payee no longer paid taxes on the amount received. Making this change allowed the federal government to tax higher incomes.
Give up alimony altogether
Because of the tax treatment, many couples have decided not to include alimony in the divorce settlement. This option is often easier for upper-middle-class to upper-class couples who may have cash and other assets to liquidate in place of alimony. Note that if you and your ex cannot remain amicable, it may become difficult to come to any compromise that may replace alimony.
Discount by assets
Instead of replacing the full value, some California couples choose to reduce alimony and accept other forms of payment in place of the remaining value. This may include the following options:
- Taking larger shares of the tax-deferred accounts
- Accepting stock and other forms of financial securities
- Accepting high-value property
- Receiving the full share of a jointly owned business
- Receiving a larger share of cash after selling jointly owned assets
Before proceeding with alternative arrangements, you may need to complete a full review of your current financial situation as a couple. You may then need to go over what you expect your future expenses to look like and begin the negotiation process there.