It has now been just over one year since the federal tax deduction was eliminated for spousal maintenance. In the past year, matrimonial attorneys and judges have grappled with how best to deal with this issue since New York's maintenance guidelines remain unchanged.

By way of background, the Trump tax reform legislation (officially known as the Tax Cuts and Jobs Act), eliminated the "alimony" deduction that had been a component of federal tax law for more than 75 years. The new law does not apply to maintenance provisions found in Separation Agreements or Judgments of Divorce entered into before Dec. 31, 2018. However, if neither an Agreement nor Judgment of Divorce was in place by Dec. 31, 2018, spousal maintenance is no longer deductible on the payor's federal income tax return. Conversely, the recipient receives the maintenance tax free. While the federal alimony deduction was eliminated, the deduction remains intact for purposes of New York state and New York City income taxes as New York opted out of the federal tax scheme and continued the alimony deduction at the state level.

Due to the federal tax law changes, there is less money available with which to pay maintenance. This is because the payor spouse, in the higher tax bracket, has a larger federal income tax obligation due to the elimination of the alimony deduction. Because New York's maintenance guidelines have not been changed to account for the elimination of the maintenance deduction, attorneys and judges have been challenged to find ways to make maintenance awards more equitable. It is incumbent upon the attorneys for the payor spouses to convince judges to "deviate" from the maintenance guidelines. Conversely, counsel for recipient spouses will likely argue for application of the maintenance guidelines and generally will only request a deviation if seeking maintenance based on the payor's "excess" income (income above the $184,000 cap).  Under the statute, there are 13 factors for deviating from the temporary maintenance guidelines. There are 15 factors for deviating from the post-divorce maintenance guidelines.

Moreover, since enactment of the maintenance guidelines, at least two cases have held that if a party seeks a deviation from guidelines, whether upwards or downwards or based upon payor's income in excess of the statutory cap, the party seeking a deviation must make that deviation request to the court and articulate a factor or factors justifying the requested deviation. See R.I. v. T.I., 51 Misc.3d 1215(A) (Sup. Ct., Kings Co. 2016); Ayash v. Chieffallo, NYLJ (1/7/19) (Sup. Ct., Westchester Co. 2019). Ideally, the party seeking a deviation should present expert proof demonstrating the financial cost to the payor of no longer being able to claim the federal tax deduction. The proof should also show how much more money recipient has under the new tax law by virtue of receiving the maintenance tax free. Some computer programs which calculate maintenance guidelines will also perform this analysis.

One reported case has dealt with the impact of the new tax legislation on maintenance awards. In Wisseman v. Wisseman, 63 Misc.3d 819 (Sup. Ct. Dutchess Co. 2019), the issue presented was how much post-divorce maintenance should be awarded based on the change in the federal tax law. The parties stipulated that the husband's effective federal tax rate was 22% while the wife's tax rate was 12%. They stipulated that application of the maintenance guidelines would result in an award of $512.54 per month. The husband argued that the guidelines amount should be reduced by his effective tax rate, 22%. The wife argued that the court should award the full guideline amount. In the end, the court awarded $451.04 per month, which was the guidelines amount less the wife's effective tax rate (12%). In other words, the court awarded the wife an amount equivalent to what she would have received had she paid federal tax on the maintenance under the old tax law. The court, essentially, made the recipient "whole" while not doing the same for the payor.

Aside from the approach in Wisseman, other remedies have emerged to make maintenance awards more equitable given the elimination of the federal alimony deduction. One computer program widely used by matrimonial attorneys considers available cash to each party after all taxes. The program determines the percentage of the combined, net after tax income available to each party under the old tax law. It then compares that percentage with the new tax law to determine what percentage of the combined, net after tax income is available to each party under the new tax law. The program then "adjusts" the guidelines maintenance figure so that, with the "suggested" maintenance amount, the parties share in the combined, net spendable income in the same percentages as each would have had assuming the old tax law was applied. Using this approach, both parties share in the loss of available income as more money is paid in federal taxes. In other words, they both share in the loss, though not in the same percentages.

In addition to the Wisseman and cash flow approaches discussed above, other arguments can be made during negotiations and litigation to make maintenance more equitable due to the elimination of the federal tax deduction. Where the payor's income exceeds the cap, perhaps less or no maintenance should be awarded on payor's excess income since the maintenance no longer is federally deductible and is received federal tax-free. For post-divorce maintenance, perhaps awards should be made for a shorter duration if no deviation is made to the guidelines amount. Another option is for the parties to equally share the payor's tax loss given the elimination of the federal tax deduction. Some attorneys have even argued for adjustments in equitable distribution given the tax law changes. In all instances where counsel seeks a deviation from the maintenance guidelines, it is critical to tie the deviation request into one or more of the statutory deviation factors. This can be done simply by citing factor "10" of both the temporary and post-divorce deviation factors. Factor 10 deals with "the tax consequences to each party."

Section News

The Family Law Section continues to be a vibrant section, providing our nearly 2,500 members with a multitude of benefits. Our three-day, "sold-out" summer meeting held this past July in Saratoga Springs was a great success. Our section continues to put on outstanding CLE programs. Our website provides section members with monthly case law and legislative updates. Our legislation committee remains on top of legislative and rules changes. Our quarterly publication, the Family Law Review, contains timely articles and our daily listserv remains extremely active, whereby members pose practice questions which are answered by other section members. Our section even has its own twitter account. As I wrap up my two-year term as chair, I wish to thank my fellow officers, Rosalia Baiamonte, Peter Stambleck and Joan Adams, as well as the co-chairs from our various committees, for all of their hard work.

Eric A. Tepper is a partner at Gordon, Tepper & DeCoursey.