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New Tax Law May Lead to More Contentious Spousal Maintenance Negotiations

Posted on in Alimony / Maintenance

New Tax Law May Lead to More Contentious Spousal Maintenance NegotiationsThis is the second in a three-part series on how eliminating the alimony federal tax deduction will affect divorces and why you may want to complete your divorce before the change is enacted. For spousal maintenance agreements approved in 2019 and later, the maintenance payer will no longer be allowed to deduct the payments from his or her federal taxable income. The recipient will also no longer count the payments as taxable income. The previous post explained the financial consequences of the change. Spousal maintenance recipients will save money from their taxes by reducing their total taxable income. However, the new tax law may result in lesser amounts of spousal maintenance being awarded.

Negotiating Factor

Divorcing couples have more flexibility in determining spousal maintenance payments than child support. They are free to negotiate whether to pay maintenance, how much to pay and the duration of the payments. The alimony tax deduction gives the paying parties an incentive to reach agreements because they know that they will recuperate some of the cost of the payments. Losing the deduction will make the negotiations more difficult. The greater-income spouse may be unwilling to pay as much spousal maintenance as he or she would have with the deduction. Settling for lesser spousal maintenance payments could negate the tax savings that the recipient spouse will earn with the new law. This may result in fewer divorcing couples being able to reach a spousal maintenance agreement without heading to court.

Maintenance Formula

Losing the alimony tax deduction may also change the amount of spousal maintenance that courts will award during divorces. A judge will take into account that the amount he or she awards will no longer include any tax savings for the payer. Illinois courts have formulas they use to determine the amount and duration of maintenance payments:

  • Annual maintenance payments equal 30 percent of the payer’s gross yearly income, minus 20 percent of the recipient’s gross yearly income;
  • The amount will be reduced if the sum of the payment total and the recipient's gross yearly income exceeds 40 percent of the combined gross yearly incomes of the payer and recipient; and
  • The duration of the payments will equal a specified percentage of the number of years the spouses were married, with the percentage increasing for every five years of marriage.

Without the alimony deduction, Illinois may change its formulas to compensate the payer.

Reaching an Agreement

You have until the end of 2018 to create and approve a spousal maintenance agreement that uses the alimony tax deduction as an incentive. A Kane County divorce attorney at Goostree Law Group can help you complete your divorce to meet the deadline. Schedule a free consultation by calling 630-584-4800.


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