Michael Bertin, Obermayer Rebmann Maxwell & Hippel

Effective Jan. 1, 2019, Section 11051 of the Tax Cuts and Jobs Act of 2017 amended the Internal Revenue Code by repealing the alimony deduction from the payor's gross income and the inclusion of alimony in the payee's gross income when filing federal income tax returns. This new law applies to all new spousal support/alimony pendente lite/alimony orders entered after Jan. 1, 2019. For modifications of orders entered prior to Jan. 1, the taxability and deductibility of the spousal support/alimony pendente lite/alimony payments remains (unless otherwise agreed upon by the parties).

The Tax Cuts and Jobs Act was signed into law in 2017. However, the provision pertaining to the deductibility and inclusion of alimony in one's income did not take effect until a year later (Jan. 1, 2019). Therefore, the family law community braced for the new law to take effect on Jan. 1. Litigants and attorneys scurried toward the end of 2018 to secure spousal support/alimony pendente lite/alimony orders by Dec. 31, 2018, so that such payments remained deductible to the payor and included in the income of the payee. Further, attorneys and the court continued to keep their eyes open as to when the Pennsylvania support guidelines would be amended to be in sync with the new tax law. With each passing day in December 2018, and no new guidelines promulgated by the Pennsylvania Supreme Court, the concerns grew.

Luckily, on Dec. 28, 2018, the Supreme Court entered an order promulgating amended guidelines addressing, inter alia, the calculation of spousal support/alimony pendente lite in light of the new tax law. The amended guidelines became effective Jan. 1. As reflected in the amended guidelines, there are now two methods of calculating spousal support/alimony pendente lite. There is one set of calculations for modification of orders entered prior to Jan. 1, 2019, and another set of calculations for new initial orders entered after Jan. 1, 2019. For modification of orders entered prior to Jan. 1, 2019, the method of calculation remains as it has been previously which is either 30 percent of the difference of the parties' net incomes minus child support, or 40 percent of the difference of the parties' net incomes if there is no child support order. The second method of calculating spousal support/alimony pendente lite (i.e., for initial orders entered after Jan. 1, 2019) also affects the calculation of child support. Prior to the amended guidelines, the calculation of child support occurred before the calculation of spousal support or alimony pendente lite. Under the new method, spousal support/alimony pendente lite is calculated first. Instead of using a percentage of the difference of the parties' net incomes, the new guideline takes different percentages of the incomes of payor and the payee and then subtracts the two from each other to arrive at a spousal support/alimony pendente lite order. In cases where there is no child support to be calculated, 40 percent of the payee's income is subtracted from 33 percent of the payor's net income. In cases where there is also child support to be calculated, 30 percent of the payee's income is subtracted from 25 percent of the payor's net income, and then the result is subtracted from the payor's net income and added to the payee's net income in calculating child support. This new form of calculation results in lower spousal support/alimony pendente lite orders to compensate for the non-deductibility/taxability of spousal support/alimony pendente lite under the new tax law.

Concerns have been raised that the computer systems in the courts will not be updated to be consistent with the new calculation method for new initial orders. However, the calculations will be run outside of the computer system until the systems are updated. It is strongly advisable for attorneys to bring calculations with them to court to assist in reaching the final calculation for spousal support/alimony pendente lite and child support.

Prior to the new tax laws, if a support order that contained both spousal support/alimony pendente lite and child support and the order did not allocate which portion was for spousal support/alimony pendente lite and which portion was for child support, the entire order was treated as tax deductible to the payor and taxable to the payee. The new amendments to the support guidelines remove the provisions pertaining to the allocation of support orders and considerations that flow from the same, as spousal support/alimony pendente lite are no longer taxable/deductible.

Contained in the amended guidelines is another big change that is not related to the new tax law. This change pertains to the allocation of additional expenses, such as private school and camp expenses when spousal support/alimony pendente lite is being paid in addition to child support. Prior to the amended support guidelines, the parties would divide these expenses in accordance with their proportionate shares of their combined monthly net incomes. Under the amended guidelines, the parties' proportionate shares are calculated after shifting the spousal support/alimony pendente lite payment from the net income of the payor to the net income of the payee. However, this will only apply in cases where there is a spousal support/alimony pendente lite payment being made. Therefore, in cases where only child support is being paid, the amount of child support being paid will not be shifted from the payor's net income and added to the payee's net income for purposes of apportioning additional expenses.

The amended guidelines also addressed another important issue. The Pennsylvania Supreme Court case of Hanrahan v. Bakker, 186 A.3d 958 (Pa. 2018), decided on June 19, 2018, mandated a discrete reasonable needs analysis in all high income child support cases pursuant to Pa.R.C.P. 1910.16-3.1. It was assumed that the rationale of Hanrahan applied to all high income spousal support/alimony pendente lite cases since high income spousal support/alimony pendente lite cases and high income child support cases are governed by the same rule, Pa.R.C.P. 1910.16-3.1. The logical extension of Hanrahan to high income spousal support/alimony pendente lite cases became a reality when the Supreme Court promulgated the amended guidelines on Dec. 28, 2018, by including the official note directing all to the Hanrahan case when calculating child support, spousal support and alimony pendente lite. The note can be found under Rule 1910.16-2(e)(2).

There are other adjustments to the guidelines contained in the amended guidelines issued on Dec. 28, 2018, and, therefore, all should carefully review the same. Now that the Pennsylvania Supreme Court has remedied the concerns of the bar and the bench as to whether the amended guidelines would be promulgated in time for the effective date of the new tax law, the family law community can breathe a sigh of relief, until the next big issue arises that causes all concern.

Michael E. Bertin is a partner at the law firm of Obermayer Rebmann Maxwell & Hippel. Bertin is co-author of the book “Pennsylvania Child Custody Law, Practice, and Procedure.” He is a Fellow of the American Academy of Matrimonial Lawyers, the chair-elect of the family law section of the Pennsylvania Bar Association, former chair of the family law section of the Philadelphia Bar Association, and the current co-chair of its custody committee. Contact him at 215-665-3280 or [email protected].