Spousal Support and Tax Implications

As part of the divorce agreement, a higher-earning spouse provides alimony to a lower-earning spouse so living standards can be maintained and expenses such as education, healthcare, or job loss can be covered. Previously, alimony was tax-deductible – but not anymore.

The New Tax Laws

Both the federal Tax Cuts and Jobs Act of 2017 (TCJA) and Illinois Marriage and Dissolution of Marriage Act have revoked the status of spousal maintenance as tax-deductible from January 1, 2019. It has effectively made divorces more expensive for the higher-earning family member, as well as individuals who support more than one family. This also reduces the disposal income families have to cover their needs.

However, the new tax laws apply only to divorces after December 31, 2018. Unless the spousal maintenance plan is modified, and the modifications take place in 2019 and beyond, individuals will be able to benefit from pre-2019 tax deductions. Considering modification of spousal maintenance agreements and the need to make appropriate tax returns per TCJA, a competent family law attorney can be used to manage proceedings.

Changes to the Spousal Maintenance Formula

The spousal maintenance calculation formula has also been modified due to changes in TCJA. The Illinois Marriage and Dissolution of marriage Act now requires the use of net income rather than a gross income basis. However, the formula for the use of net income is only applicable to divorce agreements and decrees that originated in 2019 and beyond. All pre-2019 agreements, even when seeking modification, can seek tax benefits using the gross income formula, which was originally used when an agreement was signed.

The new formula being used has been changed to 33 1/3 percent of the payer’s annual net income, minus 25 percent of the recipient’s annual net income. The formula will be applicable to all families who have a combined gross income of up to $500,000, and the payer has no subsequent or future child support, or past relationship obligations.

If you wish to learn more about spousal maintenance and other family law issues or want to schedule a free consultation, contact Law Office of Fedor Kozlov at 847-380-5193 to speak with an experienced divorce and family law attorney.