The new tax laws will have a significant impact for divorcing couples. Historically, maintenance paid by one spouse is tax deductible by the spouse who pays and taxable to the recipient. This will end in 2019. There are some important things you should know.
- If you are paying or receiving maintenance now based upon a judgment of dissolution of marriage that was entered before December 31, 2018, there will be no change for you now or in the future.
- If there is a modification or extension to your maintenance, the tax consequences will not change.
- If you have an order for unallocated support already in place, the tax implications will not change even if that order is modified in the future.
- If you have a divorce currently pending and there is likely to be maintenance, it would be wise to conclude the divorce in 2018 if at all possible regardless of whether you are the payor or the recipient.
- People assume that because the payor receives a deduction which will be lost next year, that the impending change will hurt the payor only. The end result will be that the combined taxes paid by a former couple will be higher under the new law. This reduces cash/resources for the children and increases the total taxes paid by two parents.
- A potential recipient will not receive more in maintenance next year as a result of the changed tax law because maintenance guidelines in Illinois have been adjusted. Guideline maintenance payments to recipients will be reduced from the current sums starting in 2019 to reflect the lost tax deduction. Future calculations will be calculated based upon an analysis of the parties’ net income rather than gross income.
- Child support will remain not taxable or deductible for either party.
Wakeman Law Group
741 S. McHenry Avenue
Crystal Lake, IL 60014