Alimony is now tax-free to the recipient (Forbes). (See “Litigation, Alimony, and Child Support in the U.S. Economy” for a reference to a U.S. Treasury analysis regarding the roughly 50 percent of alimony recipients who did not report the income and who therefore received it tax-free.)
Statutory and customary formulae haven’t changed. So where a plaintiff could previously get 30-50% of a defendant’s spending power, now there is an opportunity to capture 60-90%.
Massachusetts law, for example, provides alimony plaintiffs with the opportunity to collect 30-35 percent of the defendant’s pre-tax income via alimony (note that the plaintiff needs to spend in order to receive; the amount cannot “exceed the recipient’s need”). The tax law change means that the successful Massachusetts alimony plaintiff will now end up with more than 50 percent of the defendant’s after-tax earnings from just the alimony.
[Child support revenue will be in addition to alimony, depending on the defendant’s income and the judge. The Legislature wrote “When issuing an order for alimony, the court shall exclude from its income calculation … gross income which the court has already considered for setting a child support order.” Some judges, however, have interpreted this to mean that they can simply calculate alimony first and then subsequently calculate child support using the same total income (Judge Maureen Monks of Middlesex County is considered a pioneer in this interpretation). The result should be a transfer of roughly 80 percent of a defendant’s earnings to a plaintiff.]
So for anyone thinking of suing a higher-earning spouse… 2019 is probably the best year ever!
Related:
- “Calls for Changes to Massachusetts Alimony Law to Address Federal Tax Change and Close ‘Lifetime Alimony’ Loophole” (Attorney Jason Owens) describes how State Senator William Brownsberger decided that it wasn’t in his political interest to upset the lifetime alimony apple cart. Presumably the same politician would work to block any effort to scale back the suggested profits in the statute.
- Real World Divorce Massachusetts chapter
- Massachusetts Prenuptial Agreements (on the question of whether it is possible to contract out of alimony)
- “Child Support Litigation without a Marriage” (sex with an already-married high-income partner is generally more lucrative than marriage, with or without a divorce, to a medium-income partner)
OK, answer me this: is alimony still deductible to the payer? So what’s to stop me from “divorcing” my wife, paying a bunch of money to her that goes back into our bank account, and deducting it from mine?
That is a great idea, Jimbo, but the government is one step ahead. If the court order issued on or after January 1, 2019, the payments under that order are no longer deductible to the payer. This is why a family court lawsuit defendant’s spending power might be reduced to $0 even if the combined (alimony plus child support) award to the winner parent is for only 50 or 60 percent of the loser parent’s pre-tax income.