If you are considering divorce, one of your biggest concerns may be the impact of spousal support on taxes. Importantly, whether alimony payments are tax deductible in your situation depends on the date you signed your divorce agreement. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly changed the tax treatment of alimony payments for divorce agreements entered into after 2018.

What is Spousal Support in New York?

Spousal support, also referred to as “alimony” or “maintenance,” is a payment made by the higher-earning spouse to the lower-earning spouse after divorce. The purpose of this support is to help maintain the financial status quo of the marriage while the dependent spouse becomes self-sufficient. While spouses are free to decide the issue of spousal support between themselves outside of court, a judge will determine the outcome if an agreement cannot be reached.

If the issue of spousal support requires litigation to resolve, the amount of alimony — and whether it is awarded at all — is determined based on a number of statutory factors, including the following:

• The length of the marriage
• The earning potential of each spouse
• The income of each spouse
• Whether a party needs to incur education or training expenses
• The existence of a prenuptial or postnuptial agreement
• The age and health of both spouses
• Whether a spouse inhibited the other’s earning capacity
• The ability of the dependent spouse to become self-supporting
• Reduced loss of earning capacity due to having forgone career opportunities during the marriage
• The child custody arrangement

The longer a couple was married, the longer the alimony award will be. Pursuant to New York’s advisory schedule, maintenance lasts 15-30% of the duration of the marriage for marriages up to 15 years. For marriages between 15 and 20 years, maintenance lasts 30-40% of the marriage’s duration. Maintenance lasts 35-50% of the marriage’s duration if the marriage was longer than 20 years.

What is the Rule for Spousal Support on Taxes?

How alimony is treated by the IRS depends on when your divorce agreement was signed. Due to the Tax Cuts and Jobs Act of 2017, alimony in connection with divorce agreements dated January 1, 2019 or later is not tax deductible by the paying spouse. In addition, the recipient spouse is not required to report spousal support on taxes.

There are different implications for divorce agreements signed prior to January 1, 2019. In these cases, spousal support is tax deductible by the paying spouse and the recipient spouse must report it as income on their tax return. Notably, spouses can modify an agreement entered into before the TCJA’s new rule went into effect to account for the change in how alimony is handled. The modification must specifically state that you want the new rules to govern your alimony payments.

What Does the IRS Consider Alimony?

Not all payments made from one spouse to another constitute spousal support. The IRS has specific criteria for what is considered “alimony” for federal tax purposes. Specifically, for payments to be considered alimony — and tax-free under the new rules — each of the following requirements must be met:

• Spouses must not file a joint return with each other
• The payment must be made by cash, check, or money order
• The payment must be made to a former spouse pursuant to a divorce agreement
• The spouses must not be members of the same household when the payment is made
• There must be no liability to continue payments after the recipient spouse passes away
• The payment must not be treated as child support or be part of a property settlement
• The divorce agreement must not state that the payment is not alimony

Additionally, alimony does not include non-cash property settlements, whether the funds are distributed in a lump sum or in installments. Child support and voluntary payments not required by the divorce agreement are also excluded from the IRS’s definition of alimony.

Should You Modify Your Agreement to Reflect the TCJA’s New Spousal Support Rules?

The TCJA’s new rule concerning spousal support on taxes will not automatically apply to a divorce agreement entered into after December 31, 2018, unless it is modified. However, a spousal support modification can be obtained if both spouses agree to change the terms relating to alimony in their agreement — this may benefit both the recipient and the paying spouse. While modifying the agreement to reflect the new tax rules can reduce the tax burden for the recipient spouse, the paying spouse may be able to negotiate a lower spousal support payment.

Contact an Experienced New York Divorce Attorney

If you are facing divorce, it’s crucial to have a skillful divorce attorney who can best advise you regarding spousal support matters. At Duke Law Firm, P.C., we offer trusted representation and skillful counsel for a broad scope of matrimonial matters. We welcome you to contact us today to schedule a consultation to learn how we can help.