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The New Tax Law and its Effect on Spousal Support

· Tax Law,Divorce,Tax Considerations,spousal support,alimony

The recent changes to Federal Tax law include a provision that for any divorce (dissolution of marriage) commenced (filed with the Court) after December 31, 2018, spousal support (alimony or maintenance) resulting for those proceedings will not be taxable income to the receiving spouse nor tax deductible by the paying spouse.

This change in tax law may result in the Illinois legislature revising the Illinois law on spousal support, which Illinois law includes a formula for the presumed amount of spousal support when one of the divorcing parties requires support. The percentages of incomes and the cap on support amounts in the Illinois formula, which take into account the current taxable and tax deductible aspects of support, may end up being revised to adjust for the Federal tax changes. In addition, the current provisions that allow for deduction of spousal support paid, and inclusion of spousal support received, when calculating child support may need to be reviewed in light of the tax changes.

However, not all divorcing spouses, regardless of length of marriage, require spousal support, depending upon the specific marital and post-divorce finances of the parties. Further, regardless of the tax treatment, as spousal support is subject to modification in certain circumstances (such as if the payor becomes unemployed or disabled) or termination (such as when the payor dies), the future payment of spousal support is not a certainty and it is often preferable to pursue a division of a greater share of the marital assets to the spouse in the lesser post-divorce financial position when possible, instead of counting on future support payments.

For persons considering a dissolution of marriage and the potential that they will need, or be required to pay, spousal support, the change in the tax treatment of spousal support should be reviewed as it may impact the terms and timing of any eventual divorce.