Divorce and the IRS

Spousal maintenance (often referred to as alimony) is a payment, generally monthly, from one divorced spouse to the other.  For a Maricopa County court to award spousal maintenance, divorcing spouses must be married for at least 3-4 years and there must be a meaningful disparity in income or potential income.  The factors that determine whether and to what extent spousal maintenance will be paid are found at A.R.S. § 25-319.

Currently, spousal maintenance payments are tax deductible.  So if Diane pays $1,000 per month in spousal maintenance to Jack, that amount is deducted from her taxable income for tax purposes; and Jack’s income is increased.

The Tax Cuts and Jobs Act of 2017 changes that treatment, and the change is only a few months away.  For divorces finalized in 2019 and thereafter, spousal maintenance payments are no longer tax deductible.  That does not apply to divorces finalized before 2019.

If you are one likely to pay spousal maintenance, you will benefit by obtaining a final divorce decree before 2019.  Conversely, if you are likely to receive spousal maintenance, you will benefit by the divorce being finalized after 2019.

So, starting in 2019, some divorced people will have tax deductible spousal maintenance payments and some will not.  The only difference in tax treatment moving forward is when the final decree of divorce was entered.

Our Firm’s family law department does not favor this change in tax status.  Spousal maintenance is intended to replace income to a divorcing spouse.  Why should the spouse who lost the income pay taxes on it?  Further, the factors used to determine the amount of spousal maintenance depend on a person’s income and potential income.   Finally, tax deductible spousal maintenance allowed for creativity in settlement agreements where other property also is changing hands. That opportunity is now gone.

If you are in the midst of representing yourself in a divorce or contemplating one, you should speak with an experienced family law attorney and tax professional right away.

Written by Attorney Richard D. Lyons, rlyons@hgplaw.com

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