The federal tax bill’s major impact on alimony awards

Major changes will occur in divorces beginning in 2019.

One provision in the new federal tax bill, called the Tax Cuts and Jobs Act, will have significant affect on divorces beginning in 2019. For 75 years, alimony paid has been deductible for the paying spouse, called the payor, and taxable income to the recipient ex-spouse. The new bill turns this arrangement on its head by removing the deductibility of alimony. In addition, the payee will no longer have to pay income tax on alimony received.

Potential ramifications

Many professionals in the family law field are concerned that this change will make divorcing more difficult financially because without being able to deduct maintenance paid, the payor may be much less open to agreeing to a generous support award. Since most alimony recipients are women, many experts wonder whether women will contribute less money to retirement accounts since that money must be taxable income.

In addition, while the recipient will no longer need to pay taxes on alimony received, some are speculating that payees still will likely not come out much ahead because of the likelihood of reduced award amounts.

Anyone contemplating divorce now or in the near future should speak to an attorney immediately in 2018 to see if it would be advantageous to try to divorce this year before the new provisions kick in for divorces in 2019. The sooner the better, since courts are likely to be busy trying to handle a potential increase in divorce filings for this reason.

In addition, it is unclear whether the new provisions will apply to requests to the court to modify previous alimony awards. This is another reason to talk to a lawyer as soon as possible to determine whether to attempt a modification in 2018.

New York maintenance law

Under current New York law, post-divorce spousal maintenance is determined according to a fairly complex guideline system that takes into account several important things like income, child support, a payor's reserve of money for self-support and more. These guidelines are applied when the payor's income is equal to or less than the official income cap (as of this writing in February 2018, $184,000).

For a payor making more than the cap amount, the guidelines apply to his or her income up to the cap. In addition, the court can award more alimony from the income above the cap at its discretion considering any factors in a long list, including tax ramifications, and anything else "just and proper."

The court may disregard the guidelines entirely in any case if application would be "unjust or inappropriate" and instead craft an award after considering the list of factors, including tax consequences, and anything else just and proper.

Since the maintenance guidelines and provisions were written with the presumption that alimony would be deductible for the payor and taxable for the recipient, it will be interesting to see if the New York legislature considers amending these provisions to account for the impact of the new tax code on the parties' bottom lines.

The lawyers at Librett Friedland, LLP, with offices in Manhattan, East Hampton and Garden City represent people in divorce and other family law matters throughout the greater New York City metropolitan area.