Many people are aware of the tax reform recently signed by President Donald Trump. However, some may have missed the changes that tax reform includes for both obligors and recipients of spousal maintenance.
Minnesota family law practitioners, and many individuals who have dealt with spousal maintenance personally, are familiar with the concept that spousal maintenance is deductible to the obligor, and taxable to the recipient.
However, under the new tax code, spousal maintenance will no longer be deductible to the obligor and will no longer be considered taxable income for the recipient. Essentially, the recipient receives the money tax free and the obligor spouse bears the tax burden.
Notably, this change only applies to divorce decrees entered after December 31, 2018. If your decree is entered prior to December 31, 2018, the “old” rules still apply to your case.
How this change will practically impact family law cases moving forward is yet to be determined. This change will likely impact how spousal maintenance awards are negotiated during settlement discussions, as the obligor will no longer have the benefit of the deduction and the recipient will see each dollar as tax free income. However, it remains to be seen whether this will actually have a negative impact on either party.
If you have any questions about how this reform may effect your spousal maintenance obligation or award, please call me today at 952-800-2025 or reach out via our online contact form to set up your free consultation.