Going through a divorce is difficult enough, but the Federal tax law which took effect on January 1, 2019, makes navigating maintenance even more challenging for divorcing couples.
Maintenance, also known as alimony, is money ordered by a judge to be paid for spousal support purposes after the Court considers a list of factors under the Illinois Marriage and Dissolution of Marriage Act.
Under this new Federal tax law, maintenance is no longer tax deductible for the paying party. It also is no longer considered taxable income for the recipient.
The 2019 tax change brought an end to the tax break which the person paying support previously received. For judgments entered prior to December 31, 2018, support was includable as income to the recipient and taxed at the recipient’s tax rate; it also directly reduced the income of the payor.
The new tax law does not affect divorce judgments entered prior to December 31, 2018, but may impact future modifications. In addition, Premarital Agreements entered before this year may well have assumed a continuation of the tax deductibility of spousal support. Such now may not be the case, and accordingly, these Agreements should be reviewed.
Family law practitioners at Fischel | Kahn can provide guidance on changes in the maintenance statute and dissolution of marriage cases.