New Tax Law Effects Spousal Maintenance / Alimony

Under the new tax code effective January 1, 2019, spousal maintenance awards entered in 2019 and later will no longer be deductible by the payer or taxable to the receiving party. In the past, parties were at times more amiable to settling spousal maintenance issues as the paying party was generally in a higher tax bracket and could thus receive a larger benefit  compared to the tax burden realized by the receiving party. Thus, the paying party was often more likely to pay a bit more in spousal maintenance knowing that he/she effectively would only have to pay 50% – 60% of such amount after tax effecting such award,  while the recipient may only have to pay 15 – 25% based upon his /her tax bracket.  Under the present (soon to be old) tax code, judges generally consider the tax ramifications when awarding spousal maintenance, which will not longer be necessary under the new code. Although the new tax code will not provide the benefits described above, the Court’s and the IRS’s  job will be much easier. Unfortunately, settlement of spousal maintenance issues may be more difficult under the circumstances.

By William D. Bishop, 11/01/18