Changes to Illinois Spousal Maintenance in 2019
With the new year come new guidelines for how courts will determine an award of spousal maintenance. The modified rules went into effect on January 1, 2019, and they affect any divorce from 2019 onwards. The new rules do not apply retroactively to divorces already finalized, but they may apply if a maintenance order is modified. Continue reading for details on how the new rules might affect your maintenance payments or award in a current or pending divorce.
Changes in federal tax law regarding maintenance
The federal Tax Cuts and Jobs Act (TCJA) has had an effect on maintenance awards. Under the prior law, maintenance (also called alimony or spousal support) was taxable to the payee and tax deductible by the payor. This system encouraged divorce settlements by offering financial incentives to the wealthier party to pay support. Under the new law, effective 2019, maintenance is not a tax deduction for the payor, and recipients do not need to pay income tax on the funds received. This raises the income tax for maintenance payors. The new law applies to divorces finalized after 2018 and may apply to maintenance agreements that are modified after 2018 due to changed circumstance.
Calculating spousal maintenance in Illinois in 2019
Illinois responded to the change in federal tax law by changing the guidelines for family court judges in setting support amounts. First, courts must use net income rather than gross income in evaluating net worth, thus accommodating the additional tax burden. Second, courts must calculate maintenance at a third (33.3%) of the payor’s annual net income, less 25% of the recipient’s annual net income. However, the most the payee can receive is 40% of the total net income for the two parties, including both the recipient’s income and the maintenance award.
For example, if the payor’s net monthly income is $10,000 and the recipient’s net monthly income is $4,000, then the maximum monthly support the recipient can receive is $1,600. The parties’ combined income is $14,000; 40% of $14,000 is $5,600, which is the most the recipient can take in between net income and maintenance. Since the recipient already earns $4,000, the highest maintenance award is $1,600 ($5,600 – $4,000). The calculation would otherwise be 33.3% of the payor’s net income ($10,000 x 0.333 = 3,330) minus 25% of the recipient’s income ($4000 x 0.25 = $1,000), equaling $2,330. But, $2,330 + $4,000 = $6,330, higher than 40% of the parties’ combined net income, so the maintenance amount is limited to $1,600.
The formula only applies to couples who earn a total gross income of $500,000 or less. However, courts will sometimes apply the same formula to higher net income couples.
If you’re considering divorce in Illinois, contact the compassionate, professional, and experienced Carol Stream family law attorneys at Johnson, Westra, Broecker, Whittaker & Newitt for a consultation on your case at 630-665-9600.