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Finding alimony has always been difficult for divorce lawyers, mediators, and couples trying not to be couples.
Thanks to the new tax code, it will be even more difficult.
In previous years, maintenance payments were largely due to the fact that each state had its own rules. These stipulated how high the maintenance payments should be and when such payments should end.
“There’s no really conclusive reason for child support,” said Mary Kay Kisthardt, professor of law at the University of Missouri-Kansas City School of Law. “In every state, we’re not sure what we’re trying to do.”
For the past 75 years, however, one rule has been clear: the alimony was deductible for the payer and the recipient paid income tax on it.
The new code represents a disruption for those working in divorce – and those who are going through it, experts say, by turning that constant on its head in a highly subjective legal arena. Under the Tax Cuts and Jobs Act, in any divorce after December 31, 2018, alimony will no longer be deductible for the payer and the recipient will not have to pay tax on it.
Lawyers strive to understand and respond.
There is no really conclusive reason for the maintenance.
Mary Kay Kisthardt
Professor of Law at the University of Missouri-Kansas City School of Law
Justin Reckers, a certified divorce finance analyst in California, said that judges and attorneys in the state use certain software to calculate child support payments. This system is now unusable.
“These guidelines depend heavily on tax laws,” Reckers said.
As a result, he predicts that divorces could get more chaotic. Offering tax breaks for maintenance payers, he said, often helps move negotiations forward.
“It is a lost tool in resolving cases outside of the judicial system,” he said. “You might see more cases going to court now.”
Tom Leustek, founder of New Jersey Alimony Reform advocacy group, said he was shocked at the change. Shortly after the bill was passed, he drafted a report on the potential impact and mailed it to the office of New Jersey Governor Phil Murphy.
“The two divorced households simply cannot work as cheaply as the single household of an intact family, “it says there.” The current tax structure that helps alleviate these burdens is now eliminated. “
We can’t afford to get divorced without this tax break so let’s stay together and I don’t mean happy.
Ken Neumann
Center for mediation and training in New York City
According to the old code, there is a household income receive Tax relief through divorce because the higher earner (usually with the higher tax burden) transfers income to the poorer earning spouse (who often has a lower tax rate).
Some people may be less able to afford a divorce now, said Ken Neumann, director of the Center for Mediation and Training in New York City.
Such couples might argue, “We can’t afford to get divorced without this tax break, so we’re going to stay together, and I don’t mean happy.”
Neumann said he had received calls from confused operators.
“They ask, ‘What is going to happen? Will we negotiate differently? ‘ We don’t know the law, “he said.
On the face, it looks like it will benefit women.
The uncertainty about the new laws is already causing problems.
Reckers said maintenance recipients called and asked if they should change their existing maintenance arrangements to comply with the new tax code – so that they no longer have to pay taxes on them. He warned her: don’t consider this a godsend.
For one, experts say it is still unclear whether existing maintenance agreements that were changed in 2019 would be subject to the new rules. Regardless, the changes are likely to make less money for the recipient since, without the deduction, the payer “has less money to pay off”.
Neumann provided a hypothetical example. A man who makes $ 500,000 a year and is in the top tax bracket pays his wife $ 100,000 a year in alimony – but it only costs him about $ 50,000 after the tax break. The ex-wife receives the $ 100,000 but is left with $ 75,000 after tax.
Now, Neumann said he could see many cases where the ex-husband will argue that he can only afford $ 50,000 and the ex-wife has $ 50,000 a year left – or $ 25,000 less.
(Most of the maintenance payments are made by men, although the proportion of women has increased).
“On the face it looks like [the new law] will benefit women, “said Neumann.[But] She’ll take the biggest hit. “
You used to be able to give people an idea. Now we don’t know for sure.
Heidi Webb
Founder of Consilium Divorce Advice
In addition to receiving less money, it can also be more difficult for the maintenance recipient to pay into a retirement account, as these contributions often have to come from taxed income.
“This won’t be money to put in an IRA,” said Madeline Marzano-Lesnevich, president of the American Academy of Matrimonial Lawyers.
Many couples will rush to get their divorces in 2018 to avoid the new tax problems, said Heidi Webb, lawyer and founder of Consilium Divorce Consultations in Lincoln, Massachusetts.
“A lot of questions have been raised,” said Webb. “You used to be able to give people an idea. Now we don’t really know. “
“People are so vulnerable even during a divorce,” she said. “That makes it all worse.”
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