Under a new tax law that is going into effect in 2019, alimony (also known as “maintenance” or “spousal maintenance” in many states) is going to be treated differently than before for tax purposes. Dating back to the Internal Revenue Act of 1942, a party paying alimony could deduct the amount they pay on their taxes. At the same time, the party receiving the alimony would have to include it on their taxable income for tax purposes.
This will no longer be the case. Starting in 2019, a party paying alimony will not get to deduct it. The party receiving the alimony will also not have to claim it.
The impact of this change as it relates to divorce could be dramatic. Arguably, this might make it more difficult for parties to settle their divorce matters where spousal maintenance/alimony is at issue.
Parties who used to pay maintenance more willingly with the idea that they would get to deduct it on their taxes, might not be so willing to pay it any longer. This is where a finance neutral in the collaborative divorce process might be able to help parties work through these and other difficult financial issues.
A financial neutral can really help parties look at the finances involved in a divorce matter. To off-set this change in how maintenance is treated for tax purposes, financial neutral might help parties come up with other incentives and ways in which to get divorce matters settled amicably in the collaborative process when looking at the entire financial picture of the parties.
Many parties may opt to simply litigate their divorce matters in court over the issue of spousal maintenance. Many cases might end up being a war of attrition where the parties start litigating more often whether spousal maintenance/alimony will be paid and, if so, for how long and how much. Time will only tell if that ends up being the case. But for those parties, they will likely end up in acrimonious, prolonged and expensive litigation.
Instead of litigation a divorce in court over the issue of maintenance, the collaborative process can help parties work reach creative solutions outside of court to this issue. A financial neutral in the collaborative process can help parties think about alternatives to litigating their case in court over the issue of spousal maintenance/alimony.
For example, one option might be a disproportionate division of marital assets in lieu of maintenance being raised. In other cases, the parties might agree on rehabilitative spousal maintenance on for a set length of time.
If you are interested in a collaborative divorce, Stange Law Firm, PC can help. You can contact us at 855-805-0595.