Spousal maintenance is a payment made from one spouse to another in accordance with a Court Order or Stipulation of Settlement involving a divorce or family law matter.
(DRL 236 (B)(1)(a)) Pursuant to 26 U.S. Code § 215, for the past 75 years spousal maintenance payments (formerly known as alimony) made from one spouse to the other were considered income for tax purposes to the recipient spouse, and tax deductible for the payor spouse. The newly enacted TCJA §§ 11051 will alter this long standing provision.
For all divorce or separation agreements executed after December 31, 2018, the spouse paying maintenance (the payor) can no longer deduct said payments from their taxable income. The recipient spouse will be able to receive maintenance tax-free, like child support. Agreements made prior to 2019 will remain tax deductible for the payer spouse and included as income for the recipient spouse.
It is believed that this new provision will have a great impact on settlement negotiations in 2018.
In the past, divorce attorneys could use the tax deduction to expedite settlement by reminding the payor that they can deduct their maintenance payments. Given the new tax bill, it is likely that the payor will be less inclined to pay maintenance, however, they will be more inclined to conclude their divorce in 2018 in order to claim the deduction.
It looks like 2018 is a good year to get divorced! Call Carla A. Barone, head of the matrimonial practice at Cohen Forman Barone, LLP for a consultation: (212) 577-9314