Spousal Maintenance: Who Pays the Taxes?
By: Adam Blahnik, a Minnesota divorce and family law attorney
Are you going through a divorce and it appears as if you will be paying your soon-to-be-ex-spouse spousal maintenance (alimony)? Or, does it appear that you will be receiving spousal maintenance from your spouse? Or, is there already a court order for spousal maintenance, and you are thinking about attempting to modify it? If so, you need to know the tax implications on the amounts you pay or the amounts you receive in spousal maintenance.
Minnesota Spousal Maintenance Attorneys
In the world of spousal maintenance in Minnesota divorce proceedings, there are several options including the amounts and duration of the spousal maintenance obligation, whether it is permanent or temporary in nature and whether the spousal maintenance obligation will be modifiable or unmodifiable (through a Karon Waiver). With all these options, both spouses need to know the tax implications of any spousal maintenance obligation before agreeing to spousal maintenance in mediation (or otherwise) or before addressing the issue of spousal maintenance in a divorce trial.
Spousal Maintenance Law Change Effective January 1, 2019
Prior to 2019, any amounts paid as spousal maintenance was always deducted from the income of the payor spouse and included in the income of the recipient spouse. Thus, it reduced the income of the payor spouse and increased the income of the recipient spouse. This made sense, since the payor spouse always has a greater income than the recipient spouse, which means that the recipient spouse also usually has a lower marginal tax rate. Therefore, by transferring this income from the higher income spouse to the lower income spouse, it usually resulted in a lesser tax liability, when looking at both spouse’s combined incomes and tax liabilities on a whole.
However, effective January 1, 2019, the IRS reversed this policy, and now made it so that any spousal maintenance payments made are no longer deductible from the income of the payor, and no longer included in the income of the recipient spouse. Therefore, in most cases, this results in a collectively greater tax liability between both spouses on a whole.
What about spousal maintenance orders that exist as of December 31, 2018, but are modified after this date? Under such circumstances, even if the spousal maintenance is modified in 2019 or later, the spousal maintenance payments will continue to be deductible from the payor’s income and included in the recipient’s income for income tax purposes. The only exception to this, is if the modified spousal maintenance order expressly provides for the opposite. So, if the order is silent on the issue, the tax implications that existed at the time of the original (pre-January 1, 2019) spousal maintenance order will remain in effect.
Contact a Minnesota Spousal Maintenance Attorney for Advice
If you have any questions regarding an existing spousal maintenance obligation, or likely spousal maintenance obligation that you may be paying or receiving, it is important for you to contact an experienced Minnesota spousal maintenance attorney to discuss the tax implications of the spousal maintenance and all other options and implications of the spousal maintenance payments. The attorneys at Blahnik, Prchal & Stoll are experienced and knowledgeable in all areas of spousal maintenance.