The newly enacted Tax Cuts and Jobs Act (TCJA) may have a serious impact if you are contemplating divorce, or if you are currently paying or receiving spousal maintenance (alimony). And, as people rush to get their spousal maintenance orders finalized, if you are an employer, be prepared for the possibility of receiving an increase in requests to establish or modify wage withholding orders.
While the majority of states are slowly moving away from spousal maintenance orders in dissolution of marriage cases, Colorado is not one of them. In fact, Colorado legislators passed a bill effective January 1, 2014 which amended C.R.S. §14-10-114 by creating a process, including guidelines as to the amount and term for determining a spousal maintenance award. This maintenance guideline statute was established, in part, in an effort to aid Courts to maintain consistency from one court to the next regarding the amount and duration of spousal maintenance ordered. Prior to the 2014 amendment of this Colorado statute, courts across the state were inconsistent and litigants were literally “at the mercy of the court” regarding this issue. While this amendment did not “require” the court to follow the enacted guidelines, the guidelines did provide uniformity for courts and practitioners alike. In amending that statute, our state lawmakers considered the tax implications that a party may receive from paying or receiving maintenance. Specifically, the payer of spousal maintenance would get a tax break and be permitted to deduct these payments from their taxable income, and the payee would take a hit and have to include these payments as taxable income. These facts that were strongly considered in arriving at the mathematical formula used in this Colorado maintenance statute.
Now, the Tax Cuts and Jobs Act (TCJA) recently enacted by Congress changes the law and significantly impacts Colorado’s spousal maintenance statute. The bill specifically repeals the provisions that specify that the maintenance payments are to be included to either increase or decrease your taxable income. For new spousal maintenance orders established after December 31, 2018, the payer will no longer be permitted to use these payments as a basis to reduce their taxable income. In addition, the recipient of spousal maintenance will no longer be required to include these payments as income. If you are currently under an order to pay or receive spousal maintenance, any modification order issued after December 31, 2018 would not be impacted unless the parties agree to “opt in” and operate under the Tax Cuts and Jobs Act mandates regarding taxable income, but would not be required to. Depending on which side of the spousal maintenance order you end up on, you will either need to rush to get a new order established before December 31, 2018, or you will need to put on the brakes in an effort to stall any order from entering until after January 1, 2019.