Now that the new tax bill is on its way to being passed, it’s time to consider its ramifications in the area of family law. One of the sections within the amendment that has not been discussed frequently in the media is that spousal support will no longer carry a tax consequence to the recipient of the support. The payor of support will no longer have an above the line deduction in spousal support and the recipient will no longer have it included in his or her income.
The intention is that once the tax bill has an effective date, from that date forward anybody who finalizes a divorce or a dissolution will be affected by this change, and prior to the effective date anybody who is divorced or has had a dissolution granted, is grandfathered into the expectation they had at that time that finalized their termination of marriage.
Why is the change in tax status so important?
This is a significant change in domestic relations law and for people who have to pay spousal support. There is likely a large income differential that has triggered the order to pay spousal support. One benefit to the payment of spousal support was that it was a deduction that was helpful to the higher earner, i.e., the payor of spousal support. Now that tax advantage will be gone.
The section of the bill that has the spousal support change is expected to be approved and made part of the final tax reform bill. That means that the payor spouse will be paying spousal support to, in effect, equalize the difference in spouse incomes without a benefit to them. This change will require a new determination of what is fair in requiring a payor to pay the spousal support.
Currently, the standard in Ohio is that the payor is going to pay what is reasonable and that is determined based on a variety of different factors. Now, as a result of this coming tax change, the new factor of what the sum net proceeds that the payor of support will have at the end of the day will need to be considered.
This would be gross income minus all of the taxes paid then how much is left. From there, child support will be subtracted out, that leaves a final sum. This sum then will be considered in determining the balance of incomes between the spouses when making a spousal support order.