The 2017 passage of the Tax Cuts and Jobs Act means that for people in California, how children are claimed on taxes will change as will alimony. Some experts believe that these changes will result in higher costs for couples who divorce.
Dependent and personal exemptions have been eliminated. Divorced parents once had the option of taking turns claiming children as exemptions, but under the new law, the parent who has the child in the home more than 50 percent of the time will be able to claim a substantial head of household exemption. That parent must also be single and pay more than half of all household expenses. In addition, the parent who gets the HOH exemption can claim the child tax credit. This may be tradeable, but the IRS has yet to issue a regulation. Parents can write a divorce agreement that says the credit could be tradeable based on regulations.
It is anticipated that alimony recipients will be paid less since it will no longer be tax-deductible for the payer for all divorce agreements starting in 2019. The recipient will also not be required to pay taxes on alimony. Unlike other elements of the law, the change in alimony will not sunset in 2025. However, couples who are divorcing may want to write a divorce agreement that anticipates a possibility of more tax law changes.
There may be a number of other financial considerations in getting a divorce. California is a community property state, so most of the assets and debts accumulated by either person since the marriage are usually considered marital property unless there is a prenuptial agreement. However, couples still have the option of negotiating an agreement for property division instead of splitting everything 50/50 or going to court. In some cases, one person may want to keep certain assets while their former spouse keeps others.