TAX DEDUCTIBILITY OF SPOUSAL MAINTENANCE IS CHANGING

Under the recently enacted changes to the Federal tax laws, spousal maintenance (formerly “alimony”) ordered by a dissolution (divorce) decree or agreement executed after Dec. 31, 2018, will no longer be deductible by the payer and will be tax free to the recipient. Apparently the supporters of this particular change in our historic handling of support payments believed that this concept was in some way a Federal subsidy supporting divorces.

In the entire three plus decades that I have practiced law, the person who traditionally paid spousal maintenance had been able to legally deduct this from his/her income when filing income taxes and the recipient had to claim it as taxable income. In many situations, this would be of assistance in reaching a settlement.

For example, where one spouse made significantly more than the other, this was sometimes a negotiating tool towards settling the case especially if the paying spouse could make give enough maintenance to place them into a lesser tax bracket. If this was the case, the tax savings to the paying spouse would sometimes be an incentive to pay spousal support or even pay more spousal support. Under the changes under our tax code, this incentive completely goes away.

While it is not clear yet, this change in Federal tax law may also affect child support payments in Arizona. Currently, Arizona’s child support guidelines allows the deduction of paid spousal maintenance from one parent’s salary on the child support worksheet and, conversely, the other parent had to claim this as income. The net effect changed the amount of child support owed by each parent and additionally changed the percentage owed by each parent on the children’s medical expenses not covered by health insurance. At this juncture, it is uncertain if the Arizona guidelines will change in light of the new Federal tax code.

While I am not a tax attorney or accountant, this recent change in the Federal tax laws will bring about profound ramification on many areas of Arizona domestic relations cases.