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Illinois Adjusts Spousal Maintenance Law Ahead of Tax ChangesIllinois recently passed a law that changes the formula and court instructions for calculating spousal maintenance as part of a divorce. The law goes into effect at the start of 2019, which is the same time that a federal tax law eliminating the alimony deduction goes into effect. Illinois is adjusting its spousal maintenance law because the tax law will put a greater burden on people paying maintenance. Since the new tax law was announced, lawyers have warned divorcees that it may become more difficult to reach a spousal maintenance agreement if the payor cannot use the alimony deduction. Illinois’ new law will try to make court decisions on spousal maintenance more equitable for both spouses.

Alimony Deduction

Any spousal maintenance agreements approved before the end of 2018 are still eligible for the alimony tax deduction, and payors under existing maintenance agreements can continue claiming the deduction until a change of circumstances requires them to modify the agreement. With the alimony deduction, payors can deduct the full value of their annual maintenance payments from their federal income taxes. Payees must report the maintenance that they receive as taxable income. When the deduction is eliminated, the payor will save less on his or her taxes, and the payee will not pay taxes on his or her maintenance.

Illinois’ Response

Divorcees may be less likely to reach a spousal maintenance agreement on their own because the alimony deduction was an incentive for the payor to agree to larger maintenance payments. Illinois’ new maintenance law tells the courts to consider the tax consequences for each party when deciding on spousal maintenance. It also changes the spousal maintenance formula so that the courts:

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Elimination of Alimony Deduction Gives Urgency to DivorcesNegotiating spousal maintenance agreements during divorce may become more contentious because of a change to a long-standing tax law. The federal tax reform bill passed in late 2017 eliminated the popular alimony deduction for federal income taxes. The deduction is an incentive for higher-income spouses to agree to pay spousal maintenance. With the uncertainty that the change has created, many divorcing couples are rushing to complete their agreements before the law goes into effect.

How It Works

The current tax law allows spousal maintenance payers to deduct the value of their annual payments from their total taxable income. The maintenance recipient must report the money as taxable income. The change to the law will make maintenance tax-neutral. The payer can no longer claim a deduction, and the recipient will no longer pay taxes on the payments. There are three caveats to the law that benefit those who want to continue using the alimony deduction:

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