Tax season is underway and Americans have less than two months to file taxes for 2017.
For those who pay spousal maintenance to their former spouse all year long, filing taxes presents the opportunity to claim a tax deduction for these payments. This can often be quite significant! This is the silver lining – but not for long. President Trump's recently passed tax code imposes a substantial impact to those paying and receiving spousal maintenance.
What is spousal maintenance?
Upon divorce, it is not unusual for one spouse to ask for maintenance. Spousal maintenance is money paid by one spouse to another, separate from child support and meant to support the spouse in paying bills, upholding a certain lifestyle, or other reasons. Spousal maintenance is known in some states as “alimony” or “spousal support”.
Spousal maintenance is not mandatory in Washington State (unlike child support). The court will determine whether it is found to be just and equitable to order maintenance. This is up for some interpretation, with no specific rules governing what is just and equitable, but there are certain factors the court is likely to consider:
- Whether the person seeking support can support him- or herself
- Each party's financial resources
- The standard of living both parties are accustomed to
- How long a couple was married
- Each party's age and earning capabilities
- How much each party has contributed to the household over the course of the marriage
The court will consider these topics and more in determining whether or not spousal maintenance is granted. In general, short-term marriages tend to yield maintenance awards that are also short term, versus long-term marriages which are more likely to yield longer term awards. “Rehabilitative maintenance” is a time-limited award that is intended to afford one spouse the time to become financially independent.
How will the new tax law affect things?
This MarketWatch article details the way the new Tax Cuts and Jobs Act (TCJA) impacts alimony, or spousal maintenance as termed in Washington State. Before TCJA, payments that met the tax-law definition of spousal maintenance could always be deducted by the payer for federal income tax purposes. On the other end, recipients of spousal maintenance always had to report the payments as taxable income.
The new TCJA changes this completely. Under TCJA, tax deductions are eliminated on spousal maintenance for all divorce decrees that occur after December 31, 2018. In addition, recipients of spousal maintenance required under agreements executed post-2018 will no longer have to include this as taxable income.
For spousal maintenance payments made under pre-2019 divorce or separation agreements, the old laws remain. Payers will continue to claim a tax deduction and recipients will continue to be required to report spousal maintenance as taxable income. As the article states, it will be “business as usual”. The article goes on to describe the requirements for spousal maintenance payments required by pre-2019 divorce agreements to qualify as tax deductible. Please refer to the article for details.
The new laws bring about a dramatic change for spousal maintenance payments required under divorce or separation agreements made on or after January 1, 2019 – and it may impact the way people are looking at their divorces in this calendar year.
If you are amid divorce or separation proceedings and expect to pay spousal maintenance, it may be to your advantage to have your agreement finalized and signed before the end of the year so you will fall under the old law and be able to claim tax deductions moving forward.
However, if you expect to be the recipient of payments, it may be wise to delay finalization of your agreement until after January 1, 2019. This would mean you would fall under the new law and your payments would not have to be included as taxable income.
Either way, the shift complicates things and you need experienced counsel to help guide and support you in this process.
If you considering divorce or in the early stages of divorce proceedings, it is essential that you have strong legal representation on your side who will see your case through. If you are seeking spousal maintenance or if you are obligated to provide spousal maintenance, you will need skilled and experienced counsel who can advise you appropriately around the new tax law. Our family law attorneys at Dellino Law Group have extensive experience and expertise in this area.
Our attorneys will consult with you and advise you of your legal rights and obligations. We will support you in developing a sound understanding of how the new tax law may impact your spousal maintenance payments, and we will assist in determining the best path moving forward. Please contact our family law attorneys as soon as possible!