New Tax Plan Effects on Spousal Maintenance
Monday, February 19, 2018Spousal maintenance, along with child support and equitable distribution have long been a major component of any matrimonial settlement. The passing of the 2017 Tax Bill has created noteworthy changes in spousal maintenance, the effects of which will impact on settlement negotiations. The United States Tax Code continues to use the term “alimony,” whereas New York State has used the term “maintenance” since statutory changes made in 1980. Currently, spousal payments are tax deductible for the payor and are considered regular taxable income to the recipient. The new Tax Bill, effective for any divorces carried out after December 31, 2018, eliminates the tax deduction for the spouse paying maintenance. Keep in mind this change will only affect divorce or separation agreements executed after the December 31st date. Any agreements executed prior will only be affected if subsequently modified and if the modification expressly provides that the new law will apply.
The existing maintenance formula in New York State, which has not been modified, assumed the ability of the paying spouse to take the deduction. It will be incumbent on parties to look carefully at the available deviations in the maintenance formula to ensure an equitable result when negotiating maintenance. While maintenance will no longer be taxable, the current maintenance statute allows for deviation from the formula when the result would otherwise be unjust based upon factors such as the “tax consequences to each party” and “any other factor which the court shall expressly find to be just and proper.” DRL §§ 236B.