Orange County Financial Attorney Giving You the Representation You Need to Understand How Alimony Affects Tax Status

For many people, divorce is a part of life in California. As of 2024, the divorce rate was 60%, or 10% higher than the national average. 90% of these cases were uncontested. This means both parties agreed the marriage needed to end and agreed to separate amicably. This number is expected to climb in the coming years because more and more people of retirement age are getting divorced. In 2021, the number of “gray divorces” tripled.

Most divorced people are familiar with alimony. Even those who have not gone through a divorce themselves are familiar with the term or concept. Most people understand alimony is money one party pays to support the other. Many people need to realize the impact of alimony on income taxes. Many things need clarification regarding alimony’s role in California’s income taxes. This is especially true post-2019, when new laws were passed impacting the way alimony is regarded a tax time. This is why it’s essential to understand how alimony affects income taxes, particularly for those who were paying or receiving it before 2019.

What is Alimony in Orange County California?

Alimony is money paid by one spouse to another spouse following a divorce. It is a payment meant to help the other spouse maintain the standard of living to which they are accustomed following the end of the marriage. In a marriage, one spouse may have been the primary earner while the other may have made less money or spent time keeping the house or caring for children. A spouse may also have been going to college for the duration of the marriage, or worked a volunteer job. If a marriage ends, this spouse may suddenly find themselves single, unemployed, and possibly without the resources to support themselves. Alimony is meant to help this spouse transition into a single life without penalizing them for having gotten divorced.

There is a stereotype that husbands will always pay alimony to their wives in a divorce. This presumption comes from the fact that the partner earning more money will usually be the one to pay alimony. In the past, this has traditionally been the husband. In 2024, gender norms have radically changed, and many wives earn more than their husbands. The assumption of a man paying a woman alimony also does not take into account climbing LGBT marriage rates.

The State of California considers numerous factors when deciding which spouse will pay alimony following a divorce. The sex or gender identity of one spouse is not one of these factors. The court will consider:

• The Length of the Marriage
• Each Spouse’s Ability to Support Themselves Following a Marriage
• The Amount of Money Each Spouse Earned During the Marriage
• The Health of Each Spouse
• The Financial Needs of Each Spouse
• The Financial Needs of any Children
• The Degree to Which One Spouse Supported the Other in their Earning Potential (if they Helped Them Obtain a Degree, Certification, Job Training, etc.)
• If There Was Abuse or Neglect in the Marriage

Generally speaking, if one spouse struggles to find employment or employment that helps them earn a living wage or ends the marriage unemployed, that spouse will receive alimony. The amount of alimony that spouse receives may be tempered by other factors, such as whether they received a degree or certificate during the marriage that could help their earning potential. Conversely, an abused spouse may receive more alimony as a type of restitution.

How Do Income Taxes Impact Alimony in California?

Before 2019, alimony was treated as a form of income or expense. This made alimony payments advantageous to those paying it. It also made alimony potentially damaging to those who were receiving it. This is because people paying alimony were allowed to write it off on their taxes. This meant the amount they paid could be deducted from their overall earnings, allowing them to potentially pay less money in income taxes.

On the other hand, people receiving alimony were required to report it as payment. This meant it was considered a form of income besides whatever money they earned. This was potentially harmful because it required them to repay some of the alimony they received. One of the purposes of alimony is to help support financially struggling individuals. By treating alimony like income, this takes away needed money from vulnerable individuals. This is why the state changed the law.

Despite these changes, that are certain circumstances in which alimony may still need to be reported as income or an expense. For example, the California Franchise Tax Board, which collects state and corporate franchise income tax, does not recognize the 2019 law. Divorce agreements reached before 2019 may also still be subject to pre-2019 laws. This can make it difficult for individuals to determine whether their alimony payments are deductible or income. This can result in some individuals either under-or-over reporting income.

While beneficial to many, the 2019 law has also made filing taxes potentially challenging for many divorced people. This is why it’s essential to consult an experienced attorney before filing income taxes as a divorced person in California.

What Should I Do if I Need to File Taxes as a Divorced Person Paying or Receiving Alimony in California?

Not reporting income on your taxes is a crime. It opens a person up to fines and potential jail time. Knowing something is a write-off could result in someone paying less money at tax time. You may never get this money back. Any mistake regarding alimony on income taxes could result in a negative outcome. This is why it’s essential to consult an experienced attorney.

If you or a loved one have gone through a divorce and need help determining how alimony might impact your tax status, don’t hesitate to contact the Law Office of Patrick O’Kennedy today at 500 N State College Blvd., #1100, Orange CA 92868. Patrick O’Kennedy has an extensive background in California financial and divorce law, and understands the complicated aspects of the state’s new income tax laws. He’ll review your case and help determine what’s income, what isn’t, and whether you can write off some or all of your alimony. He understands the new law is confusing, and wants to help make a difficult situation more manageable.

Divorce proceedings are meant to be the most challenging part of ending a marriage. Determining your finances after the fact should be manageable. Don’t let confusing tax laws get in the way of starting over. If you or a loved one are paying or receiving alimony in Orange County and don’t know how it impacts your income taxes, call the Law Office of Patrick O’Kennedy right away at 714-701-6356 or email him for a no-obligation case evaluation. He can help make a difficult time seem more hopeful.