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Spousal support may not be the best option

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February 8, 2020

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Spousal support may not be the best option

A lower earning spouse may consider making a request for spousal support during the divorce. However, every financial agreement in the final decree will come with some level of tax consequence, so it is important to weigh these carefully.

California treats taxes on alimony differently from most of the country. According to the State of California Franchise Tax Board, Californians should not report spousal support paid or received on their federal 1040 forms. However, they will need to adjust their Schedule CA on their California return to reflect the amount of spousal support paid or received.

Forbes notes that in most other states, payors and receivers of alimony must report the amounts on their federal income tax forms, and the new tax law lessens the benefits of both paying and receiving the support. This has caused many people to consider other options.

If the equal division of assets would place one spouse in a higher tax bracket, he or she may benefit from agreeing to something other than a 50/50 split. This would also place the lower earning spouse in a better position financially, depending on the assets in question.

The breadwinning spouse may want to consider offering a retirement asset rather than monthly spousal support payments, depending on how close the couple is to retirement age. He or she would still contribute to the account, but the tax consequences would be quite different.

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