The Tax Cuts and Jobs Act of 2017 (TCJA)
Changes the Tax Consequences of Spousal Support
The Bargaining Chip is Off the Table
In matters of divorce, the fact that spousal support payments, called “maintenance” in the State of Colorado, were tax deductible for the payor was sometimes an important component to reaching a settlement rather than going to trial. The elimination of the tax deduction for spousal support by the TCJA has removed a powerful negotiating tool and has replaced it with an impediment for spouses trying to settle a divorce. As of January 1, 2018, that bargaining chip is off the table.
The TCJA Changes the Tax Consequences
In the fall of 2017, Congress passed the TCJA which eliminated the maintenance deduction. This means that after December 31, 2018, payers will no longer be permitted to deduct their maintenance payments. In contravention, spousal support will no longer be taxable to the maintenance payee.
Before the TCJA was voted into law, payments that met the tax-law definition of spousal support were deductible for the payer for federal income tax purposes. And the payee, or the recipient of the spousal support payments, had to report their maintenance as taxable income.
What Happens to My Support Payments That Were Ordered in 2018?
The tax consequences of court ordered spousal support in divorce agreements reached before January 1, 2019 will remain the same. But payments made in agreements after December 31st, 2018 will be subject to the TCJA.
Losing the Tax Deduction More Significant for High Net Worth Payers
For high-income individuals who are contemplating a divorce in 2019, and are facing the possibility of paying spousal support, the new law will likely be an expensive change. The tax savings that come from the spousal support deduction can be significant and the TCJA may be an especially bitter pill to swallow for high net worth spouses who are contemplating divorce in 2019. For example, there be some very unhappy payers of maintenance in Aspen, the divorce capital of Colorado. In Pitkin County, the TCJA may make paying maintenance much more expensive in the new year. Recent statistics indicate that Aspen currently ranks 6th in the nation when it comes to divorce rates.
TCJA Will Affect Modifications in 2019
It is also important to note that the new tax treatment of maintenance payments will apply to orders that are modified after December 31, 2018.
Timing Is Everything
If you are currenting in divorce proceedings and want your spousal supports payments to be tax deductible, the TCJA is providing you with a significant incentive to get your divorce agreement finalized by December 31, 2018. But if you are the recipient of spousal support, the new law provides you with an incentive to delay the finalizing of your agreement until January 1, 2019. In divorce, as in life, timing is everything.
How Elissa Bercovitz Can Help
When spousal support issues are coupled with tax consequences, the separation process can become even more complex. This is why having a highly-skilled and experienced divorce lawyer on your side is a wise choice. Ms. Bercovitz can advise you on matters involving divorce, legal separation, spousal support, child support, the allocation of parental responsibilities, and how the new tax law will affect your maintenance issues. Elissa’s goal is to provide you with a complete understanding of your Colorado family law matter and how the 2019 changes in legislation can affect you.
Contact Elissa Bercovitz
For more information about your Colorado family law matter, call Denver divorce lawyer Elissa Bercovitz for a free consultation at: