While many in Illinois flooded to their assessor’s office to prepay their property tax bill due to the reduction of the property tax deduction on their Federal tax returns, the recent tax reform act enacted by Congress and signed by President Trump contains a significant change to family law matters. Maintenance or alimony payments that were once deductible by the payor on his/her taxes and claimed by the payee on his/her taxes will no longer be the case. Since this new provision will not go into effect until January 1, 2019, there is still time to plan if this change will affect your situation.
For those that already have a maintenance obligation ordered through by the courts through a Judgment for Dissolution of Marriage, this change will not impact you as it is not applied retroactively. However, for any divorce or separation agreements signed after December 31, 2018, this change may have drastic effects on the settlement or resolution of your divorce case.
The tax deductibility of maintenance is a benefit to both sides as the result is more money being kept to be divided as the recipient is normally at a lower tax bracket resulting in lower tax payments on that income. Depending upon the circumstances, the payor may actually drop into a lower tax bracket if the deduction is significant enough.
When the maintenance formula was set forth several years ago, it was done so under the understanding maintenance would generally be tax deductible by the payor and taxable to the payee. With the change in the tax law, the legislature may feel the need to revisit the formula for maintenance. However, the legislature may simply decide to keep the formula as is. We will have to wait and see.
This change may also have further reached into to other issues related to the divorce, most notably, child support. Currently, child support is present child support tables put forth by the Illinois Department of Healthcare and Family Services. When the maintenance laws were changed several years ago, the guideline amounts for child support were based on the net incomes of the parties. The net income would be based in part upon the tax deductibility of maintenance. It is yet to be seen or known if the legislature will change the formula based upon the change in the tax law.
One final and critical matter to keep in mind with this tax law change is the date it becomes effective, January 1, 2019. Many obligors will be pushing to have the cases resolved and settled by December 31, 2018, so they are able to claim the tax deductibility of the maintenance. However, recipients may try to push for a resolution after January 1, 2019, in order to avoid having to pay income taxes on the maintenance payments.
If maintenance is an issue in your divorce case, please contact us to consult with you regarding how these tax reform laws will impact your case. We can use the latest software to properly, accurately and efficiently calculate your potential support obligations so you can prepare for your financial life after the divorce or legal separation.
Roman J. Seckel
Drendel & Jansons Law Group
111 Flinn Street
Batavia, IL 60510
(630) 406-6179 fax
Roman focuses his practice on Family Law and complementary areas.
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