Starting with divorce agreements created this year, people who pay spousal maintenance as part of a divorce can no longer claim those payments as a deduction on their federal income taxes. The alimony tax deduction was used as an incentive for a spouse to pay more maintenance after the divorce. Maintenance recipients will save on taxes because the payments are no longer part of their taxable income. However, they may have more difficulty negotiating a maintenance agreement with their spouses and may not receive as much maintenance as they would have when the deduction existed. There are financial strategies available during divorce that you can use as an alternative to spousal maintenance or that could replicate some of the benefits of the alimony deduction.

1. Property Division: You could forgo spousal maintenance and give the recipient spouse more marital properties instead. There is more certainty in the value of properties than in what you might pay or receive in spousal maintenance over several years. The transfer of money or assets between spouses during a divorce is non-taxable.
2. Lump-Sum Payment: The spousal maintenance could be paid as a lump sum as part of the divorce. You would be free of continuous maintenance payments and any financial ties to each other once your children are adults. However, you must determine what a fair lump-sum payment would be and have the money available to make that payment.
3. Retirement Benefits: You could use the money that you would have paid towards spousal maintenance and invest it in a retirement fund, which your spouse would receive payments from. In some situations, contributions to retirement plans can be tax-deductible. The recipient spouse would pay taxes on the money they receive from the fund but may collect more money than they would have from spousal maintenance. This plan is most effective if you are both near retirement age, so you can avoid early withdrawal penalties.
4. Charitable Remainder Trust: If you have philanthropic interests, you could create a charitable remainder trust with your spouse as the beneficiary. The fund would pay to the beneficiary for a set period of time, and the remaining money would be donated to a charity. As with the alimony deduction, the payor could receive tax deductions for the contributions, and the recipient would be taxed for the payments.

Contact a St. Charles Divorce Attorney

The changes to the federal tax law have made reaching a spousal maintenance agreement more complicated. A Kane County divorce lawyer at Goostree Law Group can help you negotiate a reasonable maintenance agreement. To schedule a free consultation, call 630-584-4800.

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You and your spouse may have paid for life insurance during your marriage to financially protect each other in case one of you died. Now that you are getting divorced, what you need from a life insurance plan has changed. It makes sense to remove your spouse as a life insurance beneficiary because you do not want him or her to profit from your death. You can make your children the sole beneficiaries of the plan or cancel the plan if you do not have children. However, keeping a former spouse as a life insurance beneficiary can provide financial backing for spousal maintenance payments after a divorce.

Monetary Security

A court awards spousal maintenance when one spouse was reliant on the other to pay for their accustomed standard of living. If you will receive maintenance after your divorce, being a beneficiary on your former spouse’s life insurance policy will assure that you will be financially supported in the event of his or her untimely death. Your former spouse may change the life insurance plan to reflect the fact that you are divorced, such as:

• Reducing the benefits that you would receive so that it would be no greater than what you would be owed for spousal maintenance; and
• Switching from a long-term plan to a short-term plan because the maintenance payments may be temporary.

Enforcing Life Insurance

A spousal maintenance payor may reject the suggestion of also paying for life insurance to benefit his or her ex-spouse. As long as the children are financially protected, the payor may not care about a former spouse’s financial security. As the maintenance recipient, you can request that the court require your former spouse to have you as a beneficiary on a life insurance policy. 

After more than a month, the federal government shutdown has ended with a deal to reopen the government for three weeks. However, President Donald Trump mentioned the possibility of another shutdown if he could not reach an agreement with Democratic leaders. You may wonder whether a shutdown has any effect on divorces. In most situations, the answer is “no.” A shutdown impacts the funding for federal courts, but state courts handle divorce and family law cases. A shutdown would likely affect a divorce only when one of the spouses is a federal employee.

Immediate Consequences

Federal employees do not receive pay during a government shutdown. This should not create any uncertainty about a spouse’s income during divorce negotiations because most employees receive back pay after the shutdown has ended. The government may not repay federal contractors, but those losses should not change the spouse’s future income once the government is running again. The missed pay could immediately affect people who:

• Are trying to obtain a loan to purchase their own home following a divorce;
• Are required to make monthly child support or spousal maintenance payments as part of a completed divorce agreement; or
• Do not have enough money to pay for their own child or personal expenses.

It is important to talk to your family law attorney and former spouse about your financial concerns during a government shutdown. Your former spouse may be understanding about a missed or reduced support payment when you are not receiving your income. If a shutdown persists, you can also file a motion to modify your support payments because of a change in income. However, you could be held in contempt of your divorce agreement if you fail to make support payments without explaining the reason to your former spouse or the court.

State divorce laws will not allow you to gain an advantage in support payments by quitting your job or not searching for a job. Your child support and spousal maintenance can be based on what you are realistically capable of earning. Courts will not offer much sympathy to people who try to cheat the system by creating an artificial need for support. If you are capable of working, you are expected to keep your job or try to find one.

Leaving Your Job

Courts determine child support and spousal maintenance payments based mostly each spouse’s income. Thus, a spouse could seemingly reduce his or her child support obligation and qualify for spousal maintenance if he or she was unemployed. You will not fool the court if you voluntarily leave your job in order to gain an advantage. The court will instead base your income on what you are capable of earning. However, there is a difference between quitting a job and leaving a job because it conflicts with your parenting time. As a single parent, you may need to look after your children during the hours you normally work. A court may be understanding in this situation but will expect you to look for another job that fits your schedule or to find childcare services.

Losing Your Job

You may become involuntarily unemployed during your divorce due to layoffs or being fired. The court will not hold it against you if you lose your job but, once again, will expect you to be actively looking for a job. It may want you to take a job for lesser pay until you can find new employment in your field.

Your spouse’s addiction can take a toll on your marriage and eventually lead to divorce. You may feel guilty about leaving your spouse when he or she needs help, but your own health and safety are also important. You spouse may:

• Betray your trust in order to feed his or her addiction;
• Squander your money to pay for the addiction;
• Be less physically or emotionally intimate with you; 
• Behave erratically or violently; or
• Put you and your children in dangerous situations.

Your spouse’s addiction will affect how you settle your divorce and what your spouse is likely to receive from the agreement.

Parental Rights

Your spouse may have a limited allocation of parental responsibilities if he or she is still dealing with addiction. A divorce court must consider each parent’s fitness when dividing parenting time. A person with addiction problems may be an unfit parent because he or she may: