October 8, 2018

Tax Reform and Spousal Maintenance – Big Changes Starting January 1, 2019

In late 2017, Congress passed the Tax Cuts and job Act of 2017 (TCJA), more commonly known as President Trump’s tax reform. While a substantial portion of the reform was focused on businesses, there actually is a very big change that has a large impact on divorces. Specifically, the TCJA makes a sweeping change to spousal maintenance aka alimony.

Under the old federal tax law, the person paying spousal maintenance to an ex-spouse was entitled to a dollar for dollar deduction on their federal income tax for the payments. For the person receiving the spousal maintenance, the payments were treated as taxable income on the federal income tax.

Under the TCJA, starting with divorces finalized on January 1, 2019, this will no longer be the tax treatment for spousal maintenance. Instead the person paying the spousal maintenance will have to pay the tax on it without receiving any deduction. On the other hand, the person receiving spousal maintenance will no longer have to list it as taxable income.

Now for anyone who currently has a spousal maintenance obligation, or receives spousal maintenance, there is no change. Anyone who has a finalized divorce that deals with spousal maintenance prior to that date is grandfathered in. So even if you are paying spousal maintenance in 2019, as long as your divorce was finalized before January 1,2019, you can take the dollar for dollar deduction on your federal income tax going forward.

If you, or someone you know, is thinking about getting a divorce now is the time to speak with an experienced family law attorney. Experienced family law attorneys, such as the ones at SeilerSchindel, are able to help navigate clients through recent changes in the law like the impact of the TCJA on spousal maintenance