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Rolling Meadows alimony attorney tax issuesGetting divorced may be the right move for the health and happiness of both spouses, but financially, this decision can be devastating. The divorce process itself is expensive for many couples, and rearranging finances after years of sharing responsibility is no easy task. Making this transition is extremely difficult for all spouses, but those facing financial disadvantages are at risk of suffering irreparable fiscal damage by leaving the marriage. Spouses in this situation may have the option of asking for spousal maintenance (formerly known as alimony) from the other spouse if his or her financial means are more lucrative and stable.

Spouses who are returning to work after years or decades of absence will likely struggle to maintain an acceptable standard of living post-divorce, and decisions about spousal maintenance are frequently settled via negotiation or mediation. However, resolving this matter is about to get much more complicated and volatile, as a new tax law goes into effect on January 1, 2019, that will completely upend the treatment of spousal support. This change will greatly disincentivize a paying spouse from agreeing to this support, and it will greatly increase the likelihood of litigation to determine whether alimony will be required. 

Tax Changes

Paying spousal maintenance is a significant financial burden for most people. Under the current tax laws, a person may deduct alimony payments from their federal income taxes, thereby reducing the payor’s overall tax liability. The former spouse receiving spousal support is currently required to report this money as income.

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Inverness spousal support attorneyAnyone who is currently paying alimony (legally referred to as spousal maintenance in Illinois) or considering this issue in the midst of divorce is likely aware that as of 2019, the tax rules for this obligation will change dramatically. Currently, the payor receives a deduction for this expense, and the recipient is required to report the payments they receive as taxable income. This arrangement relieves some of the financial burden this support can cause, which can serve to facilitate divorce settlement negotiations. However, under the recent federal tax reform laws, both the ability to deduct alimony and the need to report it as income will be eliminated for any divorce finalized on or after January 1, 2019.

Legal and financial analysts worry that this change will drastically increase the amount of conflict between spouses and greatly deter the payor spouse from agreeing to any type of ongoing spousal support. Recognizing the significant issues this change will introduce into the divorce process, Illinois lawmakers passed a new law this year that allows for adjustments to modification awards in hopes of making the transition under the new tax law easier. A discussion of the changes in Illinois alimony law will follow below.

New Baseline Spousal Maintenance Formula

Alimony is always a contentious issue in divorce, as the spouse asked to pay rarely has any desire to support an ex-partner once the relationship is severed. Further, unlike child support, which is the legal right a child holds until adulthood, alimony is essentially discretionary, and courts must determine if such support is appropriate before moving forward. To make this assessment, a long list of factors must be evaluated, and if the request is granted, the amount and duration of spousal support must be calculated.

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Illinois spousal maintenance, Palatine divorce attorneysWhen a judge issues a spousal maintenance or spousal support order, one spouse must pay a certain amount of money on a regular basis to the other spouse. You only receive maintenance if the judge decides that you need it and your spouse has the ability to pay it. The Illinois Marriage and Dissolution of Marriage Act (IMDMA) contains uniform guidelines for spousal maintenance orders in Illinois divorce proceedings. The goal of the guidelines is to make spousal maintenance awards in divorce more consistent and to let you know what to expect if you get spousal maintenance in your Illinois divorce.

Application of the Spousal Maintenance Guidelines

The spousal maintenance guidelines apply only when the judge already decided that maintenance is appropriate. To determine whether spousal maintenance is appropriate in your case, the judge must consider several factors, including the following for both parties:

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Posted on in Division of Property

divorce and taxes, Palatine divorce attorney, property division, tax issues following divorce, child support, alimony, tax return, income tax returnAfter months — or even years — of legal wrangling, your divorce is finalized and you and your ex-spouse are now free to move on with your lives. However, if either of you were ordered to pay alimony, or if there are children involved, there are tax issues related to the divorce to which you need to be aware. In fact, you may need to revisit these issues as circumstances change.

Common Tax Issues Faced by Couples Once a Divorce is Finalized

Filing status. Your marital status on December 31 determines your options regarding filing status for tax purposes. If your divorce is finalized before the end of the year, you may want to file as head of household rather than as a single person. You can file as head of household — and get a bigger standard deduction — if you had a dependent living with you for more than half the year and you paid more than half of the upkeep on the marital home. An attorney and accountant can advise you whether it is to your advantage to file as head of household or as an unmarried person.

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