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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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federal tax reform, Schaumburg family law attorney, spousal maintenance awards, federal tax reform law, maintenance obligationsThe implications of divorce do not end when a marriage is formally dissolved. Parents must still interact with each other as they work to share custody in a manageable fashion. Moreover, the financial adjustments required as cash flow shifts to account for new expenses and reduced income are very necessary and long lasting.

A divorced individual’s tax liability is often directly impacted by divorce but frequently receives much less attention and consideration in the settlement process than this issue deserves. How property distribution and the method of disposition is structured, as well as support paid and received by each party, can produce serious tax consequences in the short- and long- term.

Spousal maintenance, or alimony, is an area that is particularly affected by the tax rules, and changes to the federal tax reform law are primed to directly influence how divorcing couples handle this already contentious issue.

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Barrington family law attorney, spousal maintenance awardsTransitioning from a two-income household down to one, following divorce, is a large adjustment for most individuals. In most instances, though, each party is able to financially support himself or herself, excluding child support, without contribution from the former spouse. However, maintenance, or spousal support, is sometimes necessary to sustain a former spouse while he or she, for example, gains new skills or training to make him or her more employable.

Illinois amended the laws on spousal maintenance in 2015 to make these awards more predictable by removing any subjectivity on the amount and duration of the maintenance obligation — although, a Court's obligation to first determine if maintenance is appropriate remains the same. A set formula now determines how much and for how long maintenance awards will be, and only marriages of 20 years or more are eligible for permanent maintenance, which is left to the Court's discretion to decide.

However, even though maintenance awards are easier to predict under the new provisions, changes may occur once the Court order is in place that justify a modification or cancellation. Someone subject to pay maintenance should not be locked into this obligation if circumstances make this arrangement untenable or unfair.

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