Tax and Alimony: New in 2019

 Posted on February 15, 2019 in Family Law

If your divorce finalized on or before December 31, 2018, anyone paying alimony can claim spousal maintenance expenses to receive a tax deduction. Additionally, the recipient of the alimony will declare their payments as taxable income. However, new laws swept the nation affecting divorce judgments and modifications as of January 1, 2019. Here is how the new rules will affect you.

The Party Making Payments

If you finished signing the divorce settlement last year, the new tax laws do not pertain to you. Anyone just tying up the loose ends of their divorce or making modifications this year need to know that, going forward, any alimony paid is no longer tax-deductible.

How much you spend is also different with new calculation guidelines. Previously, maintenance payments were calculated by subtracting 20% of the recipient’s gross income from 30% of the gross income of the payor, capping out at 40% of the total combined gross income of both parties. One new change uses net income rather than the previous gross income standard. Today, a spousal maintenance payment is calculated by subtracting 25% of the recipient’s net income from 33.33% of the payor’s net income.

The Party Receiving Payments

Previously, the money received from spousal maintenance payments counted as taxable income. With the new changes, the tax burden has been removed, allowing these payments to go further. This change is beneficial for the recipient, as typically they are the lower earning of the two spouses. Unfortunately, since the payor no longer receives a government subsidy for making the payment, convincing them to agree to an acceptable amount will become more difficult, making the divorce and modification process more difficult.

Future Changes

If you are making any modifications to your existing divorce agreement, you will want to read through the adjustments carefully. If the proposed changes do not include verbiage about the new tax changes, then your agreement falls into the grandfather clause, and you may choose to use the previous tax laws. However, any modifications can opt to use the new regulations, if they so choose, so be sure to read the agreement carefully to protect yourself.

An Attorney Can Help

If you are considering divorce or think you may need a divorce modification, the new laws can make a dramatic impact on the outcome of your case. Now, more than ever, it is crucial to retain the services of an experienced DuPage County spousal maintenance attorney. The new regulations will change the dynamics of the divorce process and will take time for the system to adjust to the changes. Find out how the attorneys at the Law Office of Martoccio & Martoccio can help. Call our office today at 630-920-8855 to schedule your complimentary initial consultation.

Sources:

https://www.businessinsider.com/spousal-support-alimony-tax-rules-gop-tax-law-2019-1

https://www.marketwatch.com/story/new-tax-law-eliminates-alimony-deductions-but-not-for-everybody-2018-01-23