Beginning in 2019, maintenance payments will no longer be tax deductible. Pursuant to the newly passed federal tax bill, maintenance payments, which were for decades tax deductible by the payor and charged as income to the payee, will no longer be deductible as of January 1, 2019.
This creates a significant problem in the calculation of maintenance awards in family court, because deductibility is a major factor in the calculation. For this year, it is still possible to finalize a divorce where maintenance payments are tax deductible, but the clock is ticking. If you are in a situation where maintenance is to be paid by you, it is to your benefit to conclude your divorce before December 31, which will ensure that your divorce decree expressly addresses the issue of deductibility. If your divorce is not finalized by the end of this year, then you should consult an accountant or other tax professional before negotiating or advancing a proposed maintenance payment.
At this time, the Illinois State Bar Association and its representatives are currently discussing with members of the Illinois state legislature modifications to the current Illinois maintenance statute to deal with the upcoming tax change. It is assumed that they are working on a change to how the maintenance amount is to be calculated, taking into consideration the loss of deductibility to the payor. If this change comes to fruition, it likely will reduce the amount of the obligation. As the year progresses, more information will become available as to any proposed changes. For now, it is important to begin discussions with your legal counsel and a tax professional regarding this issue.
As a side note, the recent changes to the tax code expire in 2025. Unless its changes are extended, maintenance may become once again, tax deductible at that time.
John Rossi is a partner with McNamara Phelan McSteen, LLC. He has been practicing in the field of matrimonial and family law for almost two decades, and acts as an appointed mediator for Will County family mediations. He also acts as a court-appointed guardian ad litem, and is an experienced real estate and probate attorney. Contact John for a consultation regarding your rights under Illinois matrimonial law.