Woods: The Tax Cuts and Jobs Act of 2017 could significantly impact your divorce (column)
March 22, 2018
The Tax Cuts and Jobs Act of 2017 that was signed into law in December 2017 will have a significant impact on everyone, especially those facing divorce in the near future.
Aside from the changes in the tax rates, the elimination of the deduction for home equity lines of credit and the loss of the itemized deductions, the biggest upset in the act to the family law community is the change to the alimony provision, which Colorado calls "maintenance."
Prior to the 2017 tax act, maintenance and alimony paid by the payer spouse was deductible from income, while the maintenance and alimony received by the payee spouse was taxable income.
For all divorces in which a decree is entered on or before Dec. 31, 2018, this taxable maintenance arrangement can remain if the parties opt to do so. However, beginning Jan. 1, 2019, this option will no longer be available. Maintenance and alimony will no longer be a deductible to the payer, nor taxable to the payee. This is a huge change, and its effect on the family law community should not be overlooked.
First, it will have an immediate impact (likely negative) on the spouse who needs or expects to rely on the maintenance because the payer spouse can and will argue that he or she cannot afford to pay as much in maintenance if it is no longer a deductible.
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While logic might suggest that the payee spouse may come out better in the end because maintenance will no longer be considered taxable income, thereby reducing their overall tax liability, those who need more money up front may suffer the most if the overall maintenance amount is comparatively less than what it might have been previously.
Transitioning one joint life into two separate lives can be financially difficult, and many spouses need every dollar they can get when starting anew. Maintenance is not "free money," nor should it be viewed as punitive; it exists to make sure both spouses are able to live independently after divorce without governmental assistance.
Think about any marriage in which one party has forsaken their career in order to allow the other spouse to flourish in theirs, or stay-at-home parents who are raising their children while the other spouse works to provide for the family. These spouses are clearly not on equal financial footing going into the divorce, but both people should, at the very least, be able to support themselves afterwards.
Was a win-win
Additionally, classifying maintenance as a deduction was useful in making maintenance and alimony payments more palatable to the payer spouse. Usually when people are getting divorced, they're not thinking rationally about why maintenance and alimony exists or that the other spouse needs to be taken care of — it often just feels like adding insult to injury. Allowing it to be deductible made it more of a win-win for both parties.
If you earn more money than your spouse, are facing divorce and if your circumstances warrant maintenance (alimony), then do not wait — get your divorce finalized before the end of 2018 so you can keep your maintenance payments deductible.
Jessica Woods is an Avon-based attorney licensed before the bars of Colorado and Virginia. Her practice in Colorado focuses on domestic relations and family law, including divorce, child support and custody; employee-side employment litigation; landlord-tenant disputes; bankruptcy and small-business start-up. She is also a certified Child & Family Investigator for Colorado's 5th and 9th judicial districts. Woods can be reached at 970-470-2338 or firstname.lastname@example.org.