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New Tax Law in Effect January 2019

By Nottage and Ward on January 29, 2019

Effective January 1, 2019, the taxability of maintenance payments (spousal support) from one spouse to the other has changed. The Tax Cuts and Jobs Act, which was signed into law in December 2017, reversed the 77-year-old tax law that had allowed the higher-earning spouse to deduct his/her maintenance payments and required the lower-income spouse receiving the payments to pay the tax.

This long-standing law had acted as a subsidy of sorts for a divorcing couple, due to its shifting of income from a higher income bracket to a lower income bracket, which resulted in there being more money to go around for the family. Under the new law, maintenance is no longer deductible to the payor spouse or taxable to the payee spouse. The new law applies to divorces that are finalized after December 31, 2018, meaning that maintenance paid pursuant to divorces that were finalized before 2019 will continue to be deductible to the payor spouse and taxable to the payee spouse.

In order to contend with the new tax law, Illinois has passed and implemented new provisions to the maintenance statute. As of January 1, 2019, guideline maintenance will be calculated by taking 33 1/3% of the payor’s NET annual income minus 25% of the payee’s NET annual income. Previously, guideline maintenance was calculated by taking 30% of the payor’s GROSS annual income minus 20% of the payee’s GROSS annual income.

The real-life impact of the tax change will be that in many cases there will be less financial resources available to a divorced family than there would have been under the old tax law. In the past, the deductibility of maintenance also served as an incentive to agree to pay support, in that there was a financial benefit derived from it. Now, the issue of maintenance may become much more contentious during the divorce process.

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