The lack of the alimony deduction triggers the frenzy for divorce agreements till New Years Eve

  • Under current law, maintenance for the paying spouse is tax-deductible
  • Under current law, the dependent spouse pays tax on it
  • On January 1st, maintenance for the paying spouse is not deductible
  • The dependent spouse no longer has to pay taxes on it

Tax Watch columnist David McKay Wilson examines how 2019 federal tax reform will affect divorce.

There’s a rush to nail down divorce agreements until New Years Eve.

After that, in 2019, divorcees will help fund tax cuts for American companies introduced by the 2017 Trump tax reform.

As of January 1, the maintenance of the spouse making these payments is no longer tax deductible. At the same time, the recipient of the so-called spousal maintenance will no longer declare these payments as taxable income.

As of January 1, the maintenance of the spouse making these payments is no longer tax deductible.  Seen here President Trump on Monday November 26, 2018 at the MAGA Christmas rally in Biloxi, Mississippi.

This regulation reduces the money supply of the split households, as the taxes for the dependent spouse increase significantly.

The spouse receiving the payments could see the new regime as a godsend as the payments will no longer be taxable from January 1st.


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“The pressure is enormous,” said marriage attorney Lisa Zeiderman, managing partner at Miller, Zeiderman & Wiederkehr of White Plains, on Tuesday. “When the tax deduction is gone, there will be less money available for the family unit. I’ve had emails and calls all morning from people wanting us to negotiate and set deadlines and pressure their spouses to get a deal. “

Lisa Zeiderman, partner at Miller, Zeiderman & Wiederkehr in White Plains, explains the implications for federal legislation that will suspend alimony as tax deductible on December 4, 2018.

Uncertainty on January 1st

The uncertainty left by the January tax law change is fueling the rush for a deal before New Years Eve. New York State Maintenance Guidelines, enacted by state lawmakers in 2015, were based on applicable tax laws, allowing the higher-income spouse – usually the husband – to be able to deduct their payments from tax.

“The men will say, ‘I don’t pay by the guidelines,'” said lawyer Paul Goldhamer of Kantrowitz, Goldhamer & Graifman, of Chestnut Ridge, a bit of a mess. “

The guidelines allow judges to consider a number of factors in deciding how much alimony the better-paid spouse will pay, including the impact of taxes on income, length of marriage, and earning potential of both parties.


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Office of Court Administration spokesman Lucien Chalfen said there are no plans to provide guidance on tax issues to judges deciding on divorce proceedings.

“As a judiciary, we obey the law,” said Chalfen. “In matrimonial matters, it is up to the parties to negotiate the various aspects of their case, taking into account any legislative changes that may or may not ultimately affect the terms.”

That could mean more work for local accountants called in to testify divorce cases.

“We will have no choice but to hire accountants for tax reasons,” said Beacon attorney Dennis Vetrano.

How would a $ 100,000 payment work?

The federal tax treatment of alimony dates back to the early 20th century. In 1917 the US Supreme Court ruled that alimony payments were not tax deductible. But that changed in the 1940s when IRS rules allowed spouses to deduct these payments, said Jere Doyle, senior vice president of the Bank of New York Mellon Wealth Management.

The amendment, approved by the Republicans of Congress, was necessary to limit the federal Treasury’s loss to $ 1.5 trillion over 10 years. Eliminating the alimony deduction will save $ 6.7 billion – a starvation wage compared to nearly $ 700 billion saved by the $ 10,000 cap on state and local tax deductibility.

There is a lot involved. It’s not uncommon for high-end Lower Hudson Valley spouses to pay between $ 5,000 and $ 15,000 a month – or $ 60,000 to $ 180,000 a year. It is instructive to take a look at how the tax law would treat the $ 100,000 annual alimony payment.

Let’s say the child support spouse makes $ 300,000 a year and pays 35 percent federal tax on any income that is over $ 200,000. Under current law, he can deduct the $ 100,000 he pays in alimony, which lowers his tax liability by $ 35,000.

His wife would now pay tax on the $ 100,000 in child support, but at a lower rate, with her tax being only $ 17,000. In this way, the federal tax law has mitigated the financial blow that divorce brings in breaking up marriages.

The Trump Tax Act eliminated the tax break, leaving the IRS to receive $ 35,000 in taxes from the husband – and nothing from the wife. That means Uncle Sam will end up getting $ 18,000 more. That’s $ 18,000 less in joint income to split up in divorce negotiations.

“We are trying to create value in the marital estate by shifting taxable income from the higher-earning spouse to the lower-income spouse, on the premise that there would be more money for everyone,” said Mount Kisco attorney Kenneth Novenstern of Novenstern & Gaudio LLP .. “Suddenly it’s all gone.”

Since the lower-income spouse – typically the wife – no longer has to pay income tax on maintenance payments, their income would increase if the husband continued to pay the same amount of maintenance.

Yet advocates of women doubt that this will happen. They say the loss of deductibility will make divorce negotiations harder and could result in women receiving less than they do now because their spouses have less to give.

Robbie Schlaff, left, director of the Westchester County Office for Women, and Carlla Horton, director of Hope's Door, attended a free speech event at Pace Law School on December 5th.

“The incentives for the wealthy spouse to be fair and generous have now been removed,” said Robbie Schlaff, director of the Westchester County Women’s Office.

“Women continue to become impoverished,” warned Carlla Horton, executive director of Hope’s Door, a shelter for domestic violence victims in Westchester.

Novenstern suggested that state lawmakers reconsider the maintenance guidelines when it convenes in January.

It remains to be seen whether this is the case.

Congregation Judiciary Committee chairman Jeff Dinowitz, D-Bronx, promised to learn more.

“I haven’t investigated this particular topic since it was first brought to my attention,” he said. “But I’ll definitely check it out.”

Follow Tax Watch columnist David McKay Wilson on Facebook or on Twitter @ davidmckay415.

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