Quick Reminders About The New Tax Law And Maintenance

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The Tax Cuts and Jobs Act is now fully in effect, and as of January 1, 2019, all judgments of spousal support (or maintenance) in new divorces will be subject to the changes in the law – that the obligor spouse can no longer deduct maintenance from federal taxable income, and the recipient spouse must continue to count maintenance as federal taxable income. The new law reduces overall net family income and makes it harder to distribute total family income with regard to maintenance.

But the fact that the change has occurred does not mean options do not remain.

First, some states have already chosen to continue deducting maintenance for the obligor spouse for state income tax purposes, and this trend could expand.

Second, if you have a dissolution judgment entered before January 1, 2019, you are not subject to the new restrictions and can continue to deduct maintenance as the obligor. Further, if you are in a motion to modify or will in the future modify maintenance, be careful to state in the judgment you are not waiving the grandfather clause so that you can continue to deduct maintenance even with modification.

Third, spouses looking to maximize overall family income should look for options at the time of divorce. For example, in lieu of a certain amount of maintenance, a spouse could agree to accept a larger transfer of retirement benefits. The transfer is tax-free to both parties so long as the money remains in a retirement fund. While many spouses may say they need maintenance now and cannot afford to worry about retirement, they should reconsider that idea because the long term value of having a larger retirement fund will outweigh the value of maintenance. A spouse should think about downsizing now in order to be financially secure in the future when the former spouse has no obligation of financial support.

The tax change is here and should be part of any dissolution proceeding. Be sure to raise this issue with your attorney before the entry of any judgment.

If you have questions about the new tax law and maintenance, contact us – we can help.

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