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  • June 28, 2018

    Child Support Maintenance: No Longer Tax Deductible after Jan. 1, 2019

    On Jan. 1, 2019, child support maintenance is no longer deductible in divorce. Gregg Herman discusses the issue, and what it means for families undergoing divorce – and who will be paying the price.

    Gregg M. Herman

    One of the biggest changes in the practice of family law occurs Jan. 1, 2019.

    Thanks to the Tax Cuts and Jobs Act of 2017, maintenance will no longer be deductible for divorces granted after that date. However, prior orders can continue to allow maintenance to be deductible, including modifications of existing orders.

    Gregg Herman Gregg Herman, U.W. 1977, is a managing partner with Loeb & Herman, S.C. in Milwaukee, where he concentrates his practice on family law.

    The Impact

    Is this a big deal?

    Well, not for most divorces – as there is typically not sufficient income for maintenance to be an issue.

    However, it will have a significant impact on cases where there is a sufficiently long marriage and disparity in income for maintenance to be a consideration.

    In one scenario, for example, where the husband earns $350,000 per year and the wife $50,000, my calculations reflect that deductibility affords the parties an extra $500 per month each, after taxes. In other words, if their divorce occurs after Jan. 1, 2019, they will have $12,000 less per year to spend between themselves, to the benefit of the IRS and the Wisconsin Department of Revenue.

    So, what impact is this likely to have? I doubt many spouses will say to themselves: “I’m not real happy in this marriage and might need a divorce. Gosh, I better file now so I can deduct spousal support.”

    Timing Effect on Pending Divorces

    On the other hand, it may very well have a timing effect for pending divorce cases. When I spoke on the new tax law to the Family Court Judges Judicial Conference earlier this year, I suggested that they keep some time open on their calendar in late December for last minute settlements.

    One problem may be for cases that are filed late in the year, and will not have completed their 120 day waiting period yet. This waiting period can be waived under Wis. Stats. Section 767.335(2) if there is an emergency, which is defined as for:

    “the protection of the health or safety of either of the parties or of any child of the marriage or for other emergency reasons consistent with the policies of this chapter.”

    It is not clear if protecting the parties’ disposable income constitutes such an emergency, but my guess is that courts will be amenable to such requests.

    After all, if both parties would benefit and both agree to waive the waiting period, what’s the harm?

    Paying the Price

    One final thought: The change in deductibility is, at best, unfortunate.

    Allowing deductibility encourages wage earners to work extra hours and incur additional stress to make more income, as deducting payments takes out some of the sting from having to pay support.

    Unfortunately, there was no effective lobbying group to discourage congress from using this small tax savings to offset – by pennies – the massive additional deficit which will be caused by the tax reductions.

    So, some parties going through a divorce next year will pay the price.

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    Family Law Blog is published by the Family Law Section and the State Bar of Wisconsin; blog posts are written by section members. To contribute to this blog, contact Donna Ginzl and review Author Submission Guidelines. Learn more about the Family Law Section or become a member.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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