Government Reviews Divorce Support Tax

The Ministry of Finance and Economy confirmed yesterday that its policy of imposing divorce support allowance taxes is under review as part of its work on a tax system modification bill.

As of now, divorce compensation and supporting allowance awards are not taxed.

A tax system modification bill is expected to be discussed in a public hearing after the May local elections.

According to divorce lawyers, supporting allowances including child support usually range from an average of 500,000 won to one million won per month. This comes out to 6-12 million won for dependent family members per year.

So far, there have been no detailed statistics on divorce-supporting allowances. Lawyers predict that the half of all divorced couples have support allowance agreements. Total amounts of allowances paid amounts to about 420 billion to 840 billion won per year.

A lawyer from the law firm Dongsonambuk said, “Most divorced people have difficulty making a living. It doesn’t make sense that taxes will be imposed on support allowances. As currently supporting allowance is not under obligation, many barely receive allowances by filing the suit against supporters,”

The government well this well situation. Officials of the Ministry of Finance and Economy said, “Foreign countries, including the U.S., are imposing taxes on divorce-support allowance and compensation. Considering this situation, the government is reviewing support allowances as a new tax source in the middle- and long term periods,”

But he added, “Divorce rates are on the rise. Even among higher-income brackets, support awards of 60-120 million won are being given every year. We will come up with effective measures to minimize low-income bracket losses. A tax system modification bill is unavoidable.”

Government economic policy analysis concerning divorce is increasing. According to Rhee Hong-jae, an Ajou University economics professor, as the divorce rate of people in their 30s and 40s increases, growth potential will be hit hard,”

When unskilled and low-income jobs increase in number, the financial burden related to the public welfare increases as well.

Single-parent families often cannot afford to educate their children. As a result, it is predicted that there will be a shortage of manpower in the near future.

A real estate agency said recently “The more people are getting divorced, the more housing prices rise,” It means that as divorced people live apart, housing demand will increase. I am sure that the increase in divorce rate will be a new variable which affects the housing market.

Lee said, “In foreign countries, many have a very vigorous argument over how divorce has an effect on the economy. In particular, family economics and social pathology economics are being consulted,” He added, “Korea shows few signs that it will collecting related data, but it is time to come up with these variables,”

Hyun-Jin Park witness@donga.com