Maintenance Under the Tax Cuts and Jobs Act — Part 2

{3:00 minutes to read} In my last article, I outlined how the Tax Cuts and Jobs Act changed the amount each spouse pays or receives by eliminating the tax deductibility of maintenance.

The original purpose of maintenance was to provide the non-moneyed spouse, historically the wife, with the resources she needed to “maintain” herself until she is able to get back on her feet. The guidelines were put in place to create a consistent result throughout the courts in New York.

However, the guidelines were created under the old tax law, where the payment was deductible by the payor and income to the payee. Therefore, most legal professionals believe that the courts are going to adjust the amount paid in order to obtain a result that is consistent with what was intended under the guidelines.

Since maintenance was intended to “maintain” the non-moneyed spouse during the period of time it took her to “re-tool,” it seems to me that she should not receive less than the after-tax amount that she would have received under the old tax law.

This can be done by determining the “after-tax” amount of maintenance the payee would have received under the guidelines and have the payor pay that amount.

In the example above, if Wanda were in a 20% tax bracket, Harry would pay her $40,000 of maintenance instead of $50,000. This way Wanda would receive the same $40,000 as before but Harry would have $65,000 in after-tax income instead of $55,000.

Another option is that a court could require Wanda to suffer the loss by allowing Harry to pay her maintenance based on how much he would have available after reducing the guideline amount by the “tax loss” he suffered by not being able to deduct it.

Finally, a court could “split the difference” and require each spouse to suffer some of the “tax hit” that was caused by the loss of the deduction.

One thing that is certainly likely to happen: we will begin to see a lot more accountants and tax professionals involved in divorce. One problem with this, of course, is the added cost that is incurred when there are “dueling” tax professionals supporting “dueling” attorneys.

Perhaps this is another example of why it is much better to control the outcome and mediate your divorce or separation to achieve a result that can be viewed as “fair” by everyone.

I would welcome any thoughts or comments on this as well as any information anyone might have about the possibility of this provision being amended or the guidelines being redrafted to take the new tax reality into consideration.