How Have Divorce Cases Changed Without the Alimony Tax Deduction?

Wheaton spousal maintenance lawyerOn January 1, 2019, a provision of the federal Tax Cuts and Jobs Act of 2017 went into effect that will impact divorce cases going forward. This law eliminated the tax deduction for spousal support in divorces finalized on or after that date. The effects of this change to the law are still being felt, and many long-term results have yet to be seen. In many cases, it has required people on both sides of a divorce involving spousal maintenance to be more savvy and resourceful when it comes to reaching a settlement.

How Has the New Law Affected Taxes on Spousal Maintenance?

For many years, maintenance (which is also referred to as spousal support or alimony) was taxed as follows:

  • The spouse paying maintenance would be able to deduct the amount of support payments from his or her taxable income.
  • The spouse receiving maintenance would pay income taxes on the support payments.

Under the new law, there is no tax deduction for the payor of spousal support and no tax on these payments for the recipient. However, this change only applies to divorces that were completed after December 31, 2018. For divorces finalized on or before that date, spousal maintenance will continue to be taxed as it had been previously. In other words, the new law taxes spousal support payments in divorces completed in 2019 or later the same as child support payments.

Strategies Being Employed Under the New Tax Law

While some may see this change in the law as a substantial hindrance to those who pay spousal maintenance and a benefit to those who receive spousal support, the truth is that it may result in lower alimony payments and financial issues for both parties. Without the ability to deduct maintenance payments, a payor may be in a higher tax bracket, leaving them with less overall income to put toward support. Because of this, both parties in many divorce cases may be less willing to negotiate and agree on spousal maintenance payments.

To address these concerns, some divorcing spouses are getting much more creative and resourceful about how they reach spousal support agreements. In many cases, spouses are figuring out ways to reach fair divorce settlements without having the payments made by one party to the other be considered spousal maintenance that is subject to tax guidelines. Some strategies that people may use to lessen the effects of the new law include:

  • Funding alimony through pre-tax retirement accounts
  • Setting up a trust
  • Allocating more marital property through investments

Contact a DuPage County Alimony Lawyer

Changes to the tax laws can have a significant effect on your divorce, and you should be sure to understand the best ways to address these issues and reach a settlement that will meet your ongoing needs. At the Andrew Cores Family Law Group, our Wheaton divorce attorneys can help you determine how to protect your financial interests and ensure that you will be prepared for success as you move on from the end of your marriage. Reach out to us at 630-871-1002 for a complimentary consultation.

Sources:

https://www.isba.org/ibj/2018/12/breakingupishardertodo

https://www.marketwatch.com/story/new-tax-law-eliminates-alimony-deductions-but-not-for-everybody-2018-01-23

https://www.forbes.com/sites/heatherlocus/2019/07/12/minimizing-taxes-in-divorce-without-the-alimony-deduction/#77d7cfa78344

https://www.cnbc.com/2018/12/18/this-checklist-can-help-you-manage-your-divorce-after-new-alimony-tax-rules-go-into-effect.html

What Are the Different Types of Spousal Support in Illinois?

DuPage County spousal maintenance attorneyIn Illinois, there are a variety of factors that are considered when determining whether to award spousal maintenance (also known as alimony or spousal support). However, it is important to understand that there are different types of spousal support, and the type of maintenance awarded may play a role in determining how to proceed if your or your ex-spouse’s situation changes following your divorce. Here are some guidelines to follow so that you know what to expect if you are ever faced with spousal support dilemmas:

The Types of Spousal Maintenance in Illinois

There are three types of spousal support that may be awarded in an Illinois divorce case:

  1. Fixed-term maintenance—In these cases, the court will designate an end date on which spousal support payments will be terminated. This means that maintenance will be expected to be paid throughout the term, but once the term ends, the spouse providing support will no longer be obligated to offer any additional support.

  2. Indefinite maintenance—This is open-ended in such a way that there is no specific end date for spousal support. Indefinite maintenance will typically be awarded if a marriage lasted for at least 20 years. The only way for indefinite maintenance to be terminated before the death of either ex-spouse is if an order for modification of spousal support is granted.

  3. Reviewable maintenance—The court may order spousal support for a specific period of time, with the understanding that at the end of this period, the court can review and reconsider the terms of spousal support terms, making adjustments as necessary or terminating the support obligations.

What to Do When the Terms of Spousal Support No Longer Apply

If either you or your ex-spouse have experienced a significant change in circumstances, you may believe that the original maintenance award no longer applies to your situation. In cases when either party has gotten remarried or experienced an increase or decrease in income, it may be time to initiate a modification of spousal support.

While these types of modifications may seek to terminate spousal maintenance, they may also be used to renegotiate the terms of spousal support. For instance, if you have lost your job or have significant health problems, this may require a change in the amount of support that you pay or receive. Substantial financial changes may justify such modifications, even in a fixed-term maintenance agreement.

Contact a DuPage County Divorce Lawyer

Whether you expect to have a fixed-term, indefinite, or reviewable maintenance agreement in your divorce, you will want to work with a Wheaton spousal support attorney to make sure the terms of that agreement will meet your ongoing financial needs. Andrew Cores Family Law Group has the knowledge and skill to help ensure that the laws regarding spousal support are applied correctly in your divorce. Give us a call at 630-871-1002 for a free consultation.

Sources:

https://www.isba.org/ibj/2018/12/breakingupishardertodo

http://www.ilga.gov/legislation/ilcs/documents/075000050k504.htm

What Is Considered When Awarding Maintenance in an Illinois Divorce?

Wheaton spousal maintenance lawyerIf you will be getting a divorce and expect to either receive spousal maintenance or provide spousal support to your former partner, you might want to know what a judge will consider when making a decision about who will owe what in terms of long-term maintenance and alimony. In cases where your and your spouse’s lawyers are working together to come to an agreement through collaborative law or mediation, knowing these factors might be even more helpful to you.

Deciding Factors In Spousal Support Determinations

While the following list is not exhaustive, these are the majority of the major factors taken into consideration when determining whether spousal support should be awarded in an Illinois divorce:

  • Income, which can include:

  • Marital and non-marital property

  • Each party’s needs and earning potential

  • Income-earning difficulties for the spouse expected to provide spousal support, such as:

    • Unemployment

    • Reduction in income or other demotion

    • Bankruptcy

  • Lack of earning potential due to obligations from the marriage, such as:

    • Domestic duties (stay-at-home parenting)

    • Forgoing or delaying education, training, employment, or other professional development and career progression due to the marriage

  • The time it will take for the spouse seeking support to acquire the necessary qualifications to enable self-sufficiency, which will often affect spousal support designations in terms of duration

  • The effects of decisions about parental responsibilities

  • The standard of living the spouses were accustomed to during the marriage

  • The duration of the marriage

  • The tax consequences to both spouses, if any

  • Contributions made by the spouse seeking support to the other spouse’s professional development

  • Any agreements between the spouses, including a prenuptial or postnuptial agreement

In addition, the court (or, in the case of alternative dispute resolution, the spouses and their lawyers) may consider other “just and equitable” factors that should contribute to the final decision regarding spousal support. If maintenance is awarded, the amount and duration of the payments will be determined using formulas defined in Illinois law, and the results will be based on the income earned by both parties and the length of the marriage.

Contact a Wheaton Divorce Attorney

As with most elements of the divorce process, determining the amount of spousal support is a complex and nuanced matter that requires a comprehensive, detailed, and fair review of all relevant factors. To get that kind of thorough and respectful treatment, you will need the assistance of a DuPage County spousal support attorney who has the compassion and skill to guide you down the proper path. Contact Andrew Cores Family Law Group today at 630-871-1002 for a free consultation. We will help you make sure the terms of spousal support are in your favor.

Sources:

http://www.ilga.gov/legislation/ilcs/documents/075000050k504.htm

https://www.forbes.com/sites/frawleypollock/2019/04/30/alimony-and-child-support-what-judges-consider-about-your-income/#72a47ae21206