The Tax Cut and Jobs Act of 2017 changed the landscape in calculating the income tax of businesses and individuals. One of the changes of this Act affects the use of the “B”-key in DissoMaster calculations in divorce actions.
Until 2019, the payment of alimony under a divorce or separation instrument was deductible by the payor spouse and taxable to the recipient spouse, assuming the court order conformed with the provision s of IRC §71. DissoMaster, and similar support calculator programs, calculated default guideline support numbers with the consideration that the alimony payments were taxable and deductible between the parties. In calculations involving temporary support, the guideline calculations of support were ideal. They provided a simple measurement of spousal support to be paid by one spouse to the other. In the determination of permanent spousal support, the courts were precluded from relying solely on DissoMaster in the determination of support, Instead, they are required to consider the circumstances and adhere to Family Code §4320 in the determination of a permanent order.
Practitioners, wanting to find a simple way to modify guideline support in an attempt to estimate what permanent spousal support would possibly be, have previously employed the “B”-Key in DissoMaster to provide this estimate. The “B”-Key treated spousal support as non-taxable to the recipient spouse and non-deductible by the payor spouse, thus reducing the calculated amount of spousal support.
Beginning with 2019, the Tax Cut and Jobs Act of 2017 made alimony payments non-taxable to the recipient spouse and non-deductible to the payor spouse for federal income tax purposes. Thus, the Act has effectively made all calculations of spousal support as if the “B”-Key were permanently activated for federal purposes. The State of California has not adopted the federal law in 2019, so alimony payments remain taxable to the recipient spouse and deductible by the payor spouse. Consequently, in 2019, applying the “B”-Key has little impact on the calculated guideline spousal support, only modifying the support by eliminating the deductibility/taxability of support for state income tax purposes.
That is right folks…the music you hear is the demise of the “B”-Key as we know it. Practitioners will now have to find an alternative way to estimate a permanent support amount.
As always, we are ready to assist you in any way possible.