NEW TAX LAW MAY AFFECT COUPLES DIVORCING IN 2019
Oct. 4, 2018
One of the most acrimonious issues couples must address when they decide to end their marriage is spousal support (referred to as spousal maintenance in Colorado). In general, most people are not fond of the idea of having to pay a monthly sum to their ex-spouse. However, spousal maintenance is often crucial in helping the receiving spouse get back on their feet financially following a divorce. Therefore, any changes to spousal maintenance laws should be carefully considered when a couple is negotiating a divorce settlement.
Currently, under federal law those who receive spousal maintenance must pay income taxes on these payments, and those who pay spousal maintenance can deduct these payments from their income taxes. However, the federal Tax Cuts and Jobs Act, which becomes effective January 1, 2019, will make it so that those paying spousal maintenance will no longer be able to deduct these payments on their income taxes, and those receiving spousal maintenance will not have to pay income taxes on these payments. For these reasons, some couples going through a divorce may be in a hurry to finalize their divorce by the end of 2018, so they can be grandfathered into the current spousal maintenance tax laws, rather than the new spousal maintenance tax laws.
While it may seem like those receiving spousal maintenance will benefit from the new tax law, this may not always be the case. Since they can no longer deduct these expenses from their income taxes, those paying spousal maintenance may not have as much in the way of financial resources that could be counted when determining an appropriate amount of spousal maintenance. Therefore, those receiving spousal maintenance starting in 2019 may see lower payments than they would have had if their divorce was finalized in 2018. This may be especially true in high-tax states.
Many lower-earning spouses rely on spousal maintenance after a divorce to make ends meet financially. Not all spousal maintenance awards are permanent. Some last only as long as it takes for the receiving spouse to become financially self-sufficient. However, this goal may be harder to reach if the receiving spouse is not awarded a sufficient amount of spousal maintenance. Those going through a divorce who are wondering how the new tax law will affect them may want to seek professional guidance on the matter.