The New Spousal Maintenance Tax Law
Prior to January 1st, 2019, spousal maintenance was tax deductible for the person paying and was considered income for the person receiving the funds.
Last year, the Tax Cuts and Jobs Act (TCJA) was passed changing the tax-law definition for spousal maintenance. TCJA eliminates deductions for spousal maintenance ordered by post 2018 dissolution agreements/orders.
If you are considering getting a divorce or are already divorced and looking into modifying spousal maintenance in the near future, the provisions of the TCJA eliminating this deduction may have a significant effect on the outcome of your divorce or attempt for modification.
Here are some key points to this new tax law:
- Starting January 1, 2019, spousal maintenance will NO LONGER be tax deductible for the payor.
- Starting January 1, 2019, spousal maintenance is NO LONGER required to be claimed as taxable income by the recipient.
- The Act applies to spousal maintenance payments that are modified after January 1, 2019.
For those of you who are on the “giving” side of spousal maintenance, this change is extremely expensive. Not being able to your deduct spousal maintenance payments will result in a substantial increase in taxes owed.
As a result of the change in the tax law regarding the deductibility of spousal maintenance this year, you can expect to see the trend of spousal maintenance cases going to Court continue. Even prior to the tax law change, spousal maintenance has always been one of the most highly litigated issues in family law in Arizona.
Arizona does not have any Guidelines or formulas when it comes to a spousal maintenance calculation and, as a result, there is a lot of litigation surrounding this topic.
In addition, we are seeing more and more gray divorces (people divorcing over the age of 50) also causing an increase in the spousal maintenance litigation area.
If you find yourself, a friend or a loved one in need of effective litigation strategies in a family law case and you would like to work with one of our experienced Attorneys, please call OWENS & PERKINS at (480) 630-2464 to schedule your free 30 minute consultation.