The Tax Cuts and Jobs Act of 2017, signed into law on December 22, 2017, will likely have a significant impact on everyone, but especially those planning to divorce in the near future.
Aside from the changes in the tax rates, the loss of the deduction for home equity lines of credit, the loss of the itemized deductions, and so forth, the biggest shocker to the legal community was the change to the alimony (what Colorado calls “maintenance”) provision.
Prior to this tax act, maintenance paid by the payor spouse was a tax deduction, and maintenance received by the payee spouse was considered to be taxable income.
For all separation agreements entered into on or before December 31, 2018, this will remain the same. However, for any and all separation agreements entered into after December 31, 2018, this will no longer be the case. Maintenance (alimony) will no longer be a tax deduction, nor considered taxable income.
This is a huge change. In the short term, it will have an immediate impact (likely negative) on the payee spouse because the payor spouse will probably argue that s/he cannot afford to pay as much in maintenance if it’s no longer a tax deduction, thereby reducing the overall maintenance paid. While logic would suggest that the payee spouse may come out better in the end because it’s no longer taxable income (free money!), those who need more monetary support upfront may suffer the most.
The legislators of the State of Colorado now have a year to figure out how to adjust their maintenance calculators (if they choose to do so at all).
If you earn more money than your spouse, are facing divorce, and if your marriage qualifies for maintenance (alimony), do not wait.
Call Jessica and she will help get your divorce finalized before the end of 2018 so you can keep your maintenance payments as a tax deduction!