The Law Firm of Debra J. Braselton, P.C.
Illinois Matrimonial and Family Law 630-DIVORCE

Two new laws make changes to spousal maintenance

Two new laws that went into effect January 2019 could impact couples divorcing this year or in the future. These laws made changes to spousal maintenance, also called alimony, which is a payment made from a higher-wage-earning spouse to a lower-wage-earning spouse to balance an unfair economic difference caused by divorce.

Taxing spousal maintenance

The December 2017 federal income tax bill included a change to the way spousal maintenance is taxed. Before this change took effect, spousal maintenance payments were tax deductible for the payer and considered taxable income for the receiver. Because the income was shifted to the spouse in a lower tax bracket, fewer taxes were paid on the income overall.

However, for those with divorces finalized after 2018, spousal maintenance payments are no longer tax deductible for the payer. Also, received spousal support payments will no longer be taxable income. This puts an increased financial burden on the payer and is expected to result in more taxes paid overall.

Calculating spousal maintenance payments

In response to the federal tax law affecting spousal maintenance, the state of Illinois changed how spousal maintenance payments are calculated. The goal of this change is to help offset the increased financial burden placed on those making spousal support payments.

Previously, a spousal maintenance award was determined by a formula that subtracted 20 percent of the recipient’s gross income from 30 percent of the payer’s gross income for a total that could not exceed 40 percent of their combined gross income. Now, an award is determined by subtracting 25 percent of the recipient’s net annual income from 33.33 percent of the payer’s net annual income. The award cannot exceed 40 percent of their combined net income.

The major difference is that the formula now uses net income instead of gross income. Gross income is the total amount of money earned, and net income is the income earned after taxes and other deductions are taken out. This means that if either spouse has a particular tax burden or tax benefit, that can affect the amount calculated for a spousal maintenance award.

Neither law will impact those with divorces that were finalized before the end of 2018, and not all divorces involve spousal maintenance. However, those currently going through the divorce process can benefit from considering how these new laws might affect their situations.

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