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Kane County family law and personal injury lawyerThe new year typically brings alterations to existing federal and state laws, and 2019 is no exception. This year’s updates include a change to federal tax laws that will significantly impact both parties involved in divorce, while one change to state laws adds a provision designed to reduce injuries in car accidents.

Spousal Support Tax Changes 

A substantial change in U.S. tax law that went into effect on January 1, 2019 spawned an increased push to finalize divorces before the new year. To help defray the cost of the 2017 tax reform bill, spousal maintenance (formerly called alimony in Illinois) is no longer tax-deductible for former spouses who make payments. Also, maintenance recipients will no longer claim those payments as taxable income. This change applies to couples who finalize their divorce after December 31, 2018.

The previous tax deduction law dated back to the 1940s. This change is expected to save the U.S. Treasury $6.7 billion, but it comes at a price. Many divorce attorneys say it will reduce the amount of money that can be split between former spouses, which is what sparked the run on divorces in the final weeks of 2018.

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Kane County alimony attorney Illinois spousal maintenance lawsFor many couples, spousal maintenance is an important issue to address during divorce. Alimony payments can help a lower-earning spouse maintain a standard of living similar to what they enjoyed while they were married, and they will also have a major impact on the finances of a higher-earning spouse. However, divorcing couples should be aware that there are significant changes in store for divorces which are finalized on or after January 1, 2019. On that date, both federal and state laws will be going into effect that will change the way courts award spousal maintenance and how alimony is treated for tax purposes.

Changes to Federal Law

At the federal level, alimony will no longer be tax deductible for the paying spouse. For the spouse receiving spousal maintenance, the new law does not require that spousal support be claimed as income. Experts generally agree that this will likely have the effect of smaller spousal maintenance payments, since more of the paying spouse’s income will go toward paying taxes.

Changes to Illinois Law

The state of Illinois has also changed its laws on spousal maintenance in two main respects. The first change to the law concerns how courts will decide if spousal support is appropriate at all between the spouses. Not every divorcing couple will qualify for spousal support. 

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St. Charles divorce taxes attorney tax reform maintenance mortgage interestLast December, Congress passed the Tax Cuts and Jobs Act of 2017, which represented the largest reform of the U.S. Tax Code in the past 30 years. This law made a wide variety of changes which will affect nearly everyone who pays taxes in the United States, and couples who are planning to get end their marriage should be sure to understand how this law will impact their divorce. Here are three areas of the tax law which will affect divorce cases:

  1. Spousal maintenance - For divorce agreements executed after December 31, 2018, maintenance (alimony) will no longer be tax deductible for the payor, and maintenance payments will no longer be includable as part of the recipient’s gross income. Divorcing spouses should be sure to understand how this change will affect their maintenance payments, and couples with a prenuptial agreement may need to update their agreement to reflect this change to the law.
  2. Mortgage interest - For new home loans taken out after December 14, 2017, the interest is only deductible for the first $750,000 of the mortgage for a first and second home. Taxpayers with existing mortgages can continue to deduct interest on a total of $1 million for a first and second mortgage. However, interest on home equity indebtedness (that is, mortgage debt that is not used to acquire, build, or improve a primary residence) is no longer deductible, even for currently existing home equity. Couples should be sure to understand how these changes will affect the tax implications of dividing real estate property during divorce.
  3. 529 plans - When parents use a Section 529 plan to save for their children’s educational expenses, they are able to withdraw funds from these plans to pay for college expenses without being subject to taxes. Under the Tax Cuts and Jobs Act, parents are now allowed to make tax-free distributions of up to $10,000 per beneficiary per year to pay tuition for elementary or secondary public, private, or religious school. Following divorce, parents may be able to use these funds to help pay for their children’s K-12 education.

Contact a Kane County Divorce Attorney

The full effects of the tax reform law are still being determined, and couples who are planning to divorce should be sure they understand how their finances will be affected by these changes. At Ariano Hardy Ritt Nyuli Richmond Lytle & Goettel P.C., we can work with you to address every legal and financial issue in your divorce, and we will advocate for your interests throughout the divorce process, ensuring that you will have the financial resources you need as you embark on the next phase of your life. Contact our Elgin divorce lawyers at 847-695-2400 to schedule a free consultation.

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Geneva spousal maintenance attorneyWhen a couple decides to get divorced, they will be required to significantly reconfigure their lives, separating a shared home and finances into two different households. This can result in a great deal of financial upheaval, and when one spouse earns less than their former partner, they may struggle to make ends meet. In these cases, the lower-earning spouse may be eligible to receive financial support (known as spousal maintenance, spousal support, or alimony) from the higher-earning spouse. However, spouses should be aware of some recent changes to Illinois law related to temporary maintenance awarded during divorce and the total duration of maintenance payments.

Temporary Maintenance As a Credit to the Total Duration of Maintenance

Some changes to Illinois divorce law went into effect on January 1, 2018, and the percentages used to determine the duration that spousal maintenance will be paid are now based on the specific number of years of marriage, for marriages between five and 20 years. However, this duration may be affected by temporary maintenance awarded during divorce.

After a spouse has filed a petition for divorce, but before the entry of the final divorce decree, a spouse may petition the court for temporary relief, asking for decisions to be made about how certain matters will be handled while the divorce is pending. Temporary maintenance is one common type of temporary relief, and a spouse can ask to receive support from their partner based on financial affidavits submitted by both parties.

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St. Charles divorce lawyer spousal supportIllinois has a penchant for using a language of its own in matters of child support and spousal support. Just as child custody has been recast as the “allocation of parental responsibility,” permanent maintenance in matters of spousal support (alimony) is now termed “maintenance for an indefinite term.” Importantly, however, with this semantic change comes a new approach to long-term spousal maintenance in Illinois.

Beginning in 2018, Illinois Spousal Support is Less Likely to Be Permanent

“Maintenance for an indefinite term” is less likely to be permanent in nature than “permanent maintenance.” Linguistically, this makes sense, as permanence is synonymous with the word “forever,” while indefiniteness merely speaks to an end point that has yet to be determined. In terms of numbers – which are far more useful than words when it comes to forecasting spousal maintenance in Illinois – the duration of the marriage is a helpful starting point. 

The length of the marriage is often the initial term of years established in a decree of “maintenance for an indefinite term.” While this term, if derived from a marriage of 20 years or more, may in effect amount to permanent maintenance (in the sense that it will go on for the lifetime of each former spouse), the same cannot be said of a relatively brief marriage. For marriages of less than 20 years, maintenance will last for a certain percentage of the length of the marriage. 

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Kane County alimony lawyerCalculating spousal maintenance (alimony) in Illinois can be somewhat complex. The amount of maintenance payments will be based on the incomes of both spouses, and the duration that these payments will last is based on the length of the marriage. To get an idea of how maintenance is calculated, it is best to consider an example. The below figures, importantly, are reflective of a spousal maintenance calculation for couples whose total income is less than $500,000.

Step 1: Calculate 30% of the Payor’s Income

In this example, the payor’s income is $200,000 per year, the payee’s income is $40,000 per year, and the couple was married for seven years and seven months prior to divorcing. Thus, the total income is $240,000, falling under the $500,000 cap (above which maintenance is determined on a case-by-case basis). The first thing to do is to calculate 30% of the payor’s income; 30% of $200,000 equals $60,000. 

Step 2: Subtract 20% of the Payee’s Income from the 30% of the Payor’s Income

Next, calculate 20% of the payee’s income and subtract this figure from the 30% of the payor’s income. 20% of $40,000 is $8,000, and subtracting this amount from $60,000 equals $52,000. Here, we pause to make sure that adding this $52,000 to the payee’s income of $40,000 (making a total of $92,000) does not exceed 40% of the spouses’ combined income. 40% of $240,000 equals $96,000, so a maintenance award of $52,000 per year is appropriate.

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Elgin spousal maintenance lawyerWhen a couple decides to end their marriage and get divorced, one spouse is often at a financial disadvantage. Whether this is because they have chosen to be a homemaker rather than pursue a career, or simply because they earn a smaller income, they may struggle to make ends meet. In these cases, the law provides them with the ability to receive payments from their former partner which will allow them to maintain a similar standard of living to what they enjoyed while they were married.

In Illinois, the guidelines for determining maintenance (which is also known as spousal support or alimony) are a factor of the parties’ joint income. In matters of maintenance, there is a payor (the person paying out the maintenance) and a payee (the person receiving the maintenance). There is also an important line of demarcation: $500,000. Maintenance award formulas differ, depending on whether the parties’ income is below this figure or not.

A Forty Percent Cap May Complicate Maintenance Calculations

Starting on January 1, 2018, a maintenance award where the parties’ joint income is less than $500,000 annually should equal 30% of the payor’s gross income minus 20% of the payee’s gross income, with the caveat that the award, after being added to the payee’s gross income, cannot be greater than 40% of the parties’ combined gross income. To make this formula more tangible, let us consider an example: 

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