In November of 2017, the U.S. federal government enacted The Tax Cuts and Jobs Act, more commonly referred to as the Tax Reform Act. The new law has many different components, the most publicized being the reduction of income tax rates, particularly for corporations. Perhaps among the least known provisions of the law was its dramatic revision of the tax treatment of alimony. Whereas since 1942 alimony payments were deductible to the payors of spousal support and taxable to the recipients, as of January 2019, individuals paying alimony do so in “after tax” dollars and recipients of alimony no longer owe taxes on their spousal support income.
Affecting a relatively small percentage of the U.S. population, this change passed almost unnoticed by most observers, with the predictable exception of those dealing with divorcing couples and, of course, the divorcing couples themselves. Yet whether or not the people affected composed a small or large segment of the voting public is not the purpose of this article. Nor is the purpose to critique the new law that we have already denounced as being prejudicial and indeed detrimental to the divorcing public. To the contrary, we are wondering why the Massachusetts legislature has not yet recognized that it is their public duty to modify the Commonwealth’s now antiquated law.
In January of 2018 we noted that the legislature needed to address the provisions of the November 2011 Act Reforming Alimony with respect to the formula assessing alimony based on 30% to 35% of the differential in the spouses gross incomes (or need). Naturally this formula, regardless of your independent view of the fairness of the percentage assessment or of the Act’s other terms was squarely based on the paying spouse receiving a tax deduction and the recipient spouse paying taxes on his/her spousal support. The shifting of the tax obligation from the higher income spouse to the lesser income spouse provided a major incentive for increasing alimony payments.
However, regardless of your personal assessment of the new tax law, Massachusetts has not stepped up to its very real obligation to revise the existing alimony law. To leave the alimony formula as it is would wreak havoc on the negotiation of alimony. Further left unchanged, it would produce a whole new set of negative ramifications for the divorced family, including creating major disincentives for sharing other obligations such as health insurance, children’s extra curricular activities, expensive college educations, and the like.
At the Centre for Mediation and Dispute Resolution (CMDR) we have been addressing the change in the tax law from the onset—preparing in 2018 for its delayed commencement date, and now, in 2019 , after its onset, dealing with comparison formulas to mirror the original intent of Massachusetts alimony law.
Mediation provides the opportunity to negotiate agreements based on a realistic calculation of the net income available to each spouse after divorce, a chance to review budgetary needs, concerns, and priorities and to ensure, to the extent financially possible, for the welfare of the family. A good agreement, a fair agreement, a workable agreement should never be based on a false or misconceived sense of future dollars. There is no advantage to anyone to ignore the net value and the very real consequences of moneys paid and moneys received.
We hope the legislature will do their job and address the need for change. In the meantime, we will continue, as we have, to help couples deal with the real value of the moneys they exchange and use to support themselves and their families.