Is Maintenance Alive and well?
The other day I wrote about the viability of section 71 payments, in light of the Tax Cuts and Jobs Act of 2017. As you may know, effective January 1, 2019, on any new cases dealing with maintenance, the payments are no longer deductible to the payer and no longer taxable income to the recipient. That does mean that maintenance (alimony payments) is no longer an issue in a divorce case?
I think the answer to that question is no. Maintenance still will be an issue, just like it was in the past in longer marriages, where we usually see the issue, but we will now deal with the fact that such payment have no tax effects to either party. It will probably mean the payer is going to pay less money and the recipient will receive less money, since either way, the payments are not deductible and the payments are no longer taxable income. It takes a lesser amount of money to achieve the same result.
When maintenance is an issue in a divorce case, we will still need to deal with the issues we have always dealt with in the past such as (a) the amount and (b) the length). The same elements apply under the law; there has to be an ability to pay on the payer’s part and there has to be a need on the payee’s part. Maintenance is not designed to be a life time annuity, but rather, to treat the less earning spouse in a manner conducive to what was achieved and experienced during the marriage. The lesser earning spouse’s life style, should not be lessened or decreased as a result of the divorce. The standard in a long term marriage in Wisconsin (more than 20 years), still will be an equal division of all of the available net income between the parties as the starting point.
Will the tax elements need to be met? Does maintenance need to terminate upon death of either party? Does maintenance terminate upon the recipient spouse’s remarriage? Must the parties not be members of the same household? Must the agreement for support be in writing? It is clear that under the tax reform act such payments are no longer deductible, so the basic elements for what had to be include under sec. 71 and sec. 215 no longer apply.
However, it is still good practice to add language to settlements and court orders to make clear that;
a. Maintenance payments, taxable or not, do not survive the death of either party. You don’t want an obligation as a payer to being the estate of your ex spouse, should they die after the divorce. There is a statutory provision in Wisconsin that makes this clear.
b. Under Wisconsin law, maintenance payments also terminates upon the remarriage of the recipient spouse. There is a statutory provision on this as well. One should include that language in their divorce decree including the reporting requirements should one get remarried after the 6 month current waiting period expires.
c. What if the parties remain together after the divorce? The requirement that the parties had to be separated to gain the deduction of the payments no longer applies, so I think on this issue, while unusual that the parties would continue to live together after the divorce, should have no affect on the payments, certainly not on their deductibility, which is no longer allowed anyhow.
d. Must the agreement be in writing? I think it is self evident, notwithstanding sec. 71 and sec. 215, that any agreement for support or any other aspect of the divorce case, to be enforceable, must be in writing, in proper legal formal form and submitted to the court as formal court order, or approved at the time of the final court hearing and included in the findings of fact, conclusions of law and judgment of divorce.
So, is maintenance alive and well in Wisconsin? Yes, notwithstanding the sweeping changes under the Tax Cuts and Jobs Act of 2017, maintenance remains an issue an appropriate divorce case. The only difference between the current situation and the prior situation is the payments are no longer deductible or taxable income. If you have questions on the tax laws or maintenance laws in Wisconsin, contact the experienced family lawyers at Karp & Iancu, S.C. today for an initial consultation. We have a reputation within the city, state and even nation wide as being recognized as the best at what we do, family law.