A divorce leads to big financial changes for both spouses. In addition to changes in expenses, asset division, and even retirement accounts, each spouse will have to face significant tax changes. This leads to a lot of recently divorced spouses questioning how spousal maintenance is treated for tax purposes. Is maintenance taxable as income? Can the supporting spouse deduct maintenance?
The tax treatment of maintenance changed for most couples who divorced after 2019. If you have any questions about maintenance payments after a divorce in Missouri, contact the Joshua Wilson Law Firm today.
How is Spousal Maintenance Taxed?
Taxation of spousal maintenance, sometimes called “alimony,” all changed in 2019. As part of the Tax Cuts and Jobs Act (TCJA), spousal maintenance payments are no longer deductible. Additionally, the ex-spouse receiving maintenance will not have to include maintenance as income. This applies to most divorce or separation agreements made after 2018.
According to the Internal Revenue Service (IRS) tax topic on alimony, supporting spouses cannot deduct alimony or maintenance payments made under a divorce or separation agreement executed after 2018.
For spouses who receive alimony or separation maintenance payments, the payment is not included in gross income.
Tax Treatment for Divorces Before 2019
Most spouses who were divorced before 2019 and are still making maintenance payments are grandfathered into the pre-2019 tax treatment. Those parties will still generally be able to deduct spousal maintenance payments and must declare received maintenance payments as income.
Additionally, any divorce agreements that were executed before 2019 but modified after 2018 may still be able to qualify for the pre-2019 tax treatment. However, if the modification expressly provides that the repeal of the deduction applies to the modification, the new tax laws will apply.
There are still a number of restrictions that must be met for those pre-2019 changes to apply. This includes:
- The parties do not file a joint return with each other;
- The payment is in cash, checks, or money orders;
- The payment is to or for a spouse or a former spouse made under a divorce or separation instrument;
- The divorce or separation instrument does not designate the payment as not alimony;
- The spouses are not members of the same household when the payment is made;
- There is no liability to make the payment after the death of the recipient spouse; and
- The payment is not treated as child support or a property settlement.
Child Support is Never Deductible and Never Considered Income
According to the IRS, child support is never deductible and is not considered income. Other payments that are not considered to be maintenance for federal tax purposes include voluntary payments, use of the payer's property, and noncash property settlements.
Maintenance Payments in Missouri
Generally, maintenance payments may be granted by the court where it finds that the spouse seeking support lacks sufficient sources of income, including marital property. In determining the amount and duration of maintenance, the court may consider a number of factors, including:
- Financial resources of the party seeking maintenance (including marital property acquired in an asset division case, ability to meet respective financial needs independently and to provide for a child);
- Time necessary for a parent to acquire education or training to gain appropriate employment;
- Comparative earning capacity of each spouse;
- Standard of living established within a marriage;
- Duration of the marriage;
- Age and the physical and emotional condition of the spouse seeking alimony;
- Conduct of both spouses within the marriage, and
- Other relevant factors.
Maintenance payments generally continue until a certain date, or until the dependent spouse remarries, or either spouse dies.
Experienced Missouri Divorce Attorney
Tax treatment of maintenance payments should be taken into consideration when negotiating the terms of a divorce, including the amount and duration of alimony, asset division, and property distribution. If you have questions about maintenance in a divorce, the Joshua Wilson Law Firm is here to help. Contact the Joshua Wilson Law Firm today by calling (816) 331-9968 or fill out our online form.