CHICAGOLAWBULLETIN.COM MONDAY, NOVEMBER 27, 2017 ® Volume 163, No. 230 Serving Chicago’s legal community for 162 years Tax bill may upset spousal maintenance C hanges in the law over gross annual income of less than parties when they compute the time are a necessary $250,000. MODERN FAMILY amount of maintenance to be part of the legal Maintenance awards where paid. process, but can be combined gross income is In most cases, there is not particularly difficult $250,000 or more annually re- enough available net income to for divorcing parties. Changes in main subject to the factors in the allow families to maintain the laws that affect divorce can re- maintenance statute; however, JESSICA same standard of living post-di- quire parties to make difficult judges may still apply the new BANK vorce that existed prior to the di- choices that impact their families guidelines, or a portion of the INTERLANDI vorce. Current tax law may help and financial future based on ed- guidelines, in awarding mainte- buffer the impact of income ucated predictions about appli- nance in higher-income cases. being divided between two cation of brand new laws or laws For example, a judge may households by increasing the that have not yet gone into effect. apply the guidelines for duration Jessica Bank Interlandi is a partner at total net income. For example, the maintenance of maintenance in a higher-in- Schiller, DuCanto & Fleck LLP who The tax reform bill proposed provisions of the Illinois Mar- come case, but not apply guide- practices matrimonial and family law. by the U.S. House would dramat- riage and Dissolution of Mar- lines for the amount. It is She represents high-asset professionals ically alter the tax impact of and their spouses in complex family law riage Act have undergone several difficult to predict whether and spousal maintenance payments matters, with an emphasis on business changes in the last few years, how a judge might apply the cur- by eliminating the tax impact to valuation, businesses held in trusts, and there are more to come. rent guidelines in higher-income both the payor and recipient, so interstate child custody and child The first major change to the cases. This means that parties support disputes. She can be reached at maintenance would be tax neu- maintenance statute in many may be forced to decide on strat- jinterlandi@sdflaw.com. tral to both parties. There will no years occurred in January 2016 egy with limited insight into the longer be a tax savings to share, when the statute was amended effect of the current guidelines the U.S. House of Representatives. making it more difficult to sup- to provide guidelines for the on their case. The Internal Revenue Code port two households on one amount and duration of mainte- In yet another change to Illi- provides a significant financial income. nance in certain cases. nois law, a further amendment to benefit to divorcing parties due To further complicate mat- Prior to the enactment of the the maintenance provisions of to an arbitrage effect created by ters, maintenance in Illinois and guidelines in January 2016, all the marriage act is scheduled to payment of spousal maintenance many other states is calculated maintenance awards were based take effect in June that, among by a payor in a high tax bracket based on gross income, due in on the factors set forth in Sec- other changes, will raise the ceil- to a recipient in a lower tax part to the tax impact of main- tion 5/504 of the marriage act ing for application of the guide- bracket. Maintenance can be in- tenance under current federal and subject to the court’s broad lines to parties with combined cluded in the income of the recip- law. discretion. While case law pro- annual gross income of less than ient and is deductible from the If maintenance is not de- vided insight on application of $500,000. The June 2018 amend- income of the payor. ductible from the income of the the statutory factors, mainte- payor, the pool of money the nance awards varied significant- payor has from which to pay Maintenance can be included in the ly among districts and judges. maintenance will be smaller. If The January 2016 amend- income of the recipient and is deductible state law lags behind changes to ments to the act provide a for- federal law, inequity can be the mula for calculation of amount from the income of the payor. result. and duration of maintenance for For example, a payor with less parties with a combined gross in- ment also will allow for crediting Simply put, the payor is actu- net income may be unable to pay come of less than $250,000 per of court-ordered temporary ally paying less than his or her the maintenance required under year, after a baseline determina- maintenance payments toward gross obligation because of the a judgment. In addition, nontax- tion that a maintenance award is final maintenance awards and higher tax saved with the main- able maintenance may create an appropriate. While the statute will further refine the duration tenance deduction. unintended windfall to the main- still grants discretion for devia- provisions. The recipient is receiving tax- tenance recipient. tion from the guidelines, the Jan- The most significant legal able income as maintenance but If the House tax reform bill be- uary 2016 amendments provide change regarding maintenance the recipient’s tax is less due to comes law, additional new legis- greater predictability for the with the potential to impact di- being in a lower bracket. The lation in all states will be needed range of outcomes, particularly vorcing parties in recent memory taxes saved using the arbitrage to remedy these as well as other for those parties with combined is the tax reform bill proposed by may be allocated between the problems that would arise. Copyright © 2017 Law Bulletin Media. All rights reserved. Reprinted with permission from Law Bulletin Media.