Most people want to move through a divorce as quickly as possible, but they fail to understand the tax implications of their agreements. How does support affect taxible income for the recipient? For the payor? That depends upon how it is classified. According to the California Franchise Tax Board (FTB) if the divorce decree specificies support as “spousal support” or “alimony” or as “family support” then the entire amount is taxible to the recipient, and serves as a deduction to the payor.
If it is classified as “child support”, the payor cannot write off the support, nor is the recipient required to declare it as income. There are other strategies to consider when large sums of money are involved, or if the equity in your home is substantial. Trust planning may help to preserve actual cash instead of creating a taxible event.
How a business ownership interest, such as in a closely-held or family owned business, or an ownership of a professional practice are valued and divided can also represent significant challenges.
If you are in the midst of a divorce and have substantial assets, you should contact us for a free consultation on the issues you face and to consider the impact of taxation upon your divorce settlement. Call 800-631-3470 or contact our office to schedule an appointment in person.