Divorced couples who pay or receive spousal maintenance in Illinois must be sure to keep up with the latest laws regarding spousal maintenance and taxes. For instance, a tax law passed back in 2017 went into effect January of 2019.
Business Insider breaks down how the new law works. Divorced couples should read up on it to determine how to file their taxes for this year and the years ahead.
The old way
In years past, the higher-earning ex-spouse who paid maintenance took advantage of a tax deduction while the ex-spouse who received maintenance paid taxes on received payments. Now, that all reverses, meaning the wealthier individual must pay taxes on maintenance payments.
Besides a sort of turning of the tables, it is worth noting that the government now gets more money from spousal maintenance payments. Another effect of the new tax law is that the spouse who remains in the marital home could have a hard time continuing to do so if her or his tax burden increases.
The ways around it
Divorced couples do not have to despair too much. Forbes offers legal ways to regain some of the former benefits. For instance, couples in the middle of finalizing their divorce should take a different approach to dividing assets. The lower-earning spouse can negotiate for retirement assets in exchange for accepting reduced spousal maintenance payments. A Charitable Remainder Trust is another option, wherein the person making alimony payments can name the recipient as the income beneficiary.
No matter how a couple chooses to handle asset division or spousal maintenance, they should proceed with caution. Including the help of Certified Divorce Financial Analysts and CPAs is always a solid bet.