When a married couple gets divorced, the court may award alimony or spousal support to one of the former spouses, based either on an agreement between the couple or a decision by the court itself.
The purpose of alimony is to limit any unfair economic effects of a divorce by providing a continuing income to a non-wage-earning or lower-wage-earning spouse. Part of the justification is that one spouse may have chosen to forego a career to support the family, and needs time to develop job skills to support his or herself. Another purpose may be to help a spouse continue the standard of living they had during the marriage.
Taxes and Alimony
Traditionally, alimony has always been deductible to the payor and taxable to the recipient. Under the new Federal Tax Law effective January 1, 2019, alimony is no longer deductible to the paying party, nor does it constitute taxable income to the receiving party. While this does not affect agreements entered into and orders signed prior to January 1, 2019, it has tremendous consequences for parties currently engaged in a divorce or about to be engaged in the divorce process. New York State has guidelines which the courts rely on to fix maintenance (alimony), but those guidelines were established when alimony was deductible. Until the New York Legislature addresses the change in the tax law, matrimonial lawyers in New York are faced with a difficult task. If the alimony is based upon the current guidelines, the paying party will be hurt significantly since such award will no longer be deductible. On the other hand, if the court tax impacts the award to take into consideration the lack of deductibility, the recipient of the support will receive less support. Something has to give. Either the support is going to be reduced to take into account the tax consequences, or the party paying is going to suffer dramatically.
At the moment, we do not know how the court will address this issue. Will the court apply the existing guideline support without taking into consideration the tax consequences? Will the court tax impact the award? Will each judge follow his or her own conscience? Will the courts await action by the legislature and simply continue to apply guideline support without consideration of tax consequences?
Mark D. Stern has extensive experience in Alimony/Spousal Support and all matters of Family and Matrimonial Law. Contact our firm to see how we can put our knowledge and expertise to work for you. Call us at 845-294-7990 or to contact us via email, click here.