Since January 1, 2019, Illinois has critical changes to our maintenance statute: Public Act 100-923: Learn about the impact of these changes.
I’ve heard about the loss of the alimony deduction starting in 2019. Please explain how this will impact Illinois divorces.
The impact is profound and complex.
What has been the law regarding alimony (maintenance) and taxes?
For divorces entered on or before December 31, 2018, alimony (maintenance) has been deductible to the maintenance payor. And the spouse receiving maintenance has included it as income for tax purposes. What this means is that generally the alimony payor has received a tax break on alimony as paid.
What changed on January 1, 2019?
For divorces and separation agreements entered after January 1, 2019:
- No longer can the payor of maintenance deduct maintenance.
- The recipient no longer includes maintenance as taxable income.
What about modifications of maintenance?
For orders modified after January 1, 2019 but where the underlying divorce was entered before then, generally maintenance continues to be deductible. On the other hand, the parties could specify that the new tax law regarding how maintenance is treated would apply.
How does this impact maintenance payments?
This scheme had created any number of difficulties in crafting our 2019 maintenance guidelines in Illinois.
Please provide details re the 2019 maintenance law…
- The law has changed from being based on gross income. It is now based on the parties net incomes.
- The 2019 maintenance guidelines changed from 30% of payor’s gross to 33.3% of the payor’s net income. The 20% figure of the recipient’s gross changed to 25% of net income.
- There is still be a 40% of cap regarding maintenance only. But the cap applies to net income.
- And there is a new soft cap applying to child support or maintenance (or both) in terms of combined maintenance and child support. The soft cap combined child support and maintenance at 50% of the payor’s net income.
Why do you refer to a soft cap at 50%?
Compare the two presumptions. The maintenance cap at 40% of the combined net income of the parties uses the word “shall.” The “soft cap” of 50% regarding combined maintenance and child support uses the word “may.” For example, the maintenance statute provides:
If the application of guideline maintenance results in a combined maintenance and child support obligation that exceeds 50% of the payor’s net income, the court may determine non-guideline maintenance in accordance with paragraph (2) of this subsection (b-1), non-guideline child support in accordance with paragraph (3.4) of subsection (a) of Section 505, or both
What is your general advice in light of these complications?
This is a critical time to consult with a lawyer because there are any number of anticipated and anticipated complexities with the new law.
What current resources are there that help explain these issues?
A good article, if basic article, is in Accounting Today. The Martin Luther King Day Seminar (where I am presenting) will address, among other things, the 2019 new maintenance law in detail.