It seems like only yesterday that Illinois amended the maintenance statute to put new guidelines in place regarding maintenance, formerly known as alimony. In fact, there were a couple of amendments, one in 2014 and another in 2017, which changed the way the courts calculated the amount and duration which one spouse would have to pay to the other during and after the divorce proceedings. Historically, maintenance paid was tax deductible to the payor and deemed taxable income to the payee.
Then, in 2017, Congress passed the Tax Cuts and Jobs Act, which altered the tax treatment of maintenance payments ordered on or after January 1, 2019. Specifically, under federal law, maintenance would no longer be tax deductible to the payor, and would no longer be treated as taxable income to the payee. This change in federal law made Illinois’ relatively new maintenance guidelines obsolete.
The Illinois legislature took note, and amended the statute again. Beginning January of 2019, new statutory guidelines will be in place governing maintenance. Below are the most significant changes:
Calculation of Maintenance
Under the prior guidelines which were in effect to December 31, 2018, maintenance was calculated by taking 30% of the payor’s gross annual income and subtracting 20% of the payee’s gross annual income. When statutory maintenance was added to the payee’s gross annual income, maintenance is capped such that the payee could not have a gross annual income that exceeds 40% of the parties’ combined gross annual income.
Under the new statute, maintenance is calculated by taking 33 1/3% of the payor’s net annual income and subtracting 25% of the payee’s net annual income. The 40% limit still applies (unless there’s a basis to deviate from it). The definition of net income is the same, as reflected in the child support statute, although temporary maintenance payments being received during pending proceedings are not includable.
Further, under the new law, the court can deviate from the guidelines if application of the guidelines if imposing guideline maintenance in combination with child support would result in the payor paying in excess of 50% of his or her net income in support.
Furthermore, the legislature removed language regarding unallocated support from the new statute. Unallocated support, under the old statute, could not be ordered by a Judge, but could be agreed upon by the parties. Essentially, it allowed the payor to combine child support and maintenance payments into a lump sum. The advantage to paying unallocated support was that the payor could deduct the entire amount of payments from his or her gross income, whereas separately, maintenance was deductible but child support was not.
Due to the change in the tax code, in which maintenance payments are no longer deductible from the payor’s gross income, the unallocated support provisions has been removed from the statute. There is no longer any incentive to pay maintenance and child support in a lump sum. However, maintenance orders entered prior to January 1, 2019, are still subject to the prior tax law, meaning that unallocated support which was already in effect remains tax deductible to the payor and includable in the gross income of the payee.
Duration of Maintenance
When a Court orders that one spouse pay to the other spouse maintenance upon divorce, the statute provides a formula for determining how long the payor is obligated to pay. However, maintenance can still terminate if one of the factors in the statute is met, for example, if a payee remarries or cohabits with another person on a resident, continuing, conjugal basis. The new law retains the 2017 formula for calculating the duration of maintenance, essentially multiplying the length of the marriage by a specific number. The new law incorporates the recently changed formula, and retains the same provisions regarding indefinite and reviewable maintenance.
Specifically, the new law states that if a court grants maintenance for an indefinite term the court shall not include an end date in the order and the maintenance shall continue unless those payments are terminated as the result of a triggering event listed in the statute or a party files a petition to modify maintenance and meets the statutory burden of proof.
Also, courts may order that maintenance will be reviewable after a specified amount of time, without the need for any triggering event or substantial change in circumstances. The new statute follows the prior law, which stated that if the court awards a party maintenance and determines that the award is reviewable, the court must designate a specific period when maintenance will be reviewable and must make specific findings upon review.
Overall, the new maintenance statute includes significant changes to the way that maintenance is calculated and removes an option once used to provide the parties with a significant tax benefit. Contact us today if you have any questions regarding maintenance or modification of an existing maintenance award.