Tax Law Revisions and Maintenance/Alimony Payments

Many people are still learning how certain sections of the GOP tax bill passed last year are impacting various areas of their lives. It may take many more months for tax professionals, financial experts, and other experts to sort through the various consequences of the tax law revisions. One area of particular concern for our Illinois maintenance and alimony attorneys is how the tax revisions impact our clients who have maintenance and support obligations to ex-spouses. The revisions in the tax law have many people scrambling to file and complete their divorces by the end of 2018 to avoid losing an important tax deduction for alimony payments.

How Are Alimony and Maintenance Payments Taxed Right Now?

If you are ordered to pay alimony or maintenance payments in a divorce, you can claim a tax deduction for those payments under the old tax laws. Your ex-spouse must then report the payments as income for tax purposes. However, under the Tax Cuts and Jobs Act (TCJA), this 75-year old law is being reversed.

New Laws for Alimony and Maintenance Beginning January 1, 2019

The TCJA changes the law regarding the deduction for alimony or maintenance payments. Beginning with divorce actions finalized on or after January 1, 2019, spouses who pay alimony will lose the tax deduction for these maintenance payments. In addition, spouses who receive alimony payments will no longer be required to pay taxes on the maintenance payments they receive.

Therefore, the provisions of the TCJA regarding alimony and maintenance have many people rushing to file and complete their divorce actions before December 31, 2018, to avoid the change in how alimony is taxed. Our Illinois maintenance and alimony attorneys are currently working with clients who might have large maintenance obligations to file and complete their divorce action before the end of this year to preserve the tax deductibility of maintenance payments.

On the other hand, if a spouse believes he or she will be the recipient of alimony or maintenance payments, the spouse may be encouraged to wait until after December 31, 2018, to initiate a divorce proceeding. Unfortunately, waiting to begin a divorce proceeding until 2019 could have negative consequences for alimony recipients too.

Divorce Settlements and Divorce Litigation May Become Much More Difficult Under the New Tax Law

Many attorneys and financial experts fear the new laws may hamper divorce negotiations. In many cases, the amount of alimony and maintenance is negotiated based in part on the tax implications for the payor.

Therefore, if the higher-income spouse no longer receives a tax deduction for alimony and maintenance payments, that spouse may not be willing to pay as much in alimony payments to the lower-income spouse. In theory, the change in the tax law could result in many spouses who need alimony payments to maintain a household receiving much less in maintenance payments than they would have received before the new tax revisions.

In addition, it is still unknown how the tax changes will impact alimony and maintenance amounts negotiated through prenups or premarital agreements. Many of those agreements were also negotiated based on the old tax laws for alimony and maintenance payments.  Alimony agreements that are modified after 2018 will be subject to the new tax law.

Contact an Illinois Maintenance and Alimony Attorney for Help

Our lawyers are closely monitoring the developments regarding Illinois maintenance and alimony payments under the new tax law. We strongly urge you to contact our office to discuss the timing of your divorce. Depending on your situation, it may benefit you financially to file your divorce action and complete your divorce before the end of 2018. Make the call to the Goodman Law Firm today to discuss your situation with a dedicated Illinois maintenance and alimony lawyer.