As the above article sets forth, there could be dramatic changes to spousal support laws across the country. Spousal support is also known as alimony in some states or maintenance in other states – such as Colorado.
Per the proposed tax plan in Washington D.C., the plan (if passed) would eliminate the tax deduction for the obligor (person paying) per a maintenance obligation here in Colorado. Currently the law allows the obligor to claim a deduction for maintenance paid while the maintenance received is taxable as income to the recipient. This proposed change would only apply to Divorce Decrees that are entered after January 1, 2018.
The changes could have sweeping ramifications. On January 1, 2014, a new Colorado Law became effective as it pertained to maintenance and discretionary maintenance guidelines. While the guidelines are discretionary, they are often times followed by the Courts. The maintenance guidelines currently in effect are based on the current tax consequences – that being the obligor can claim a deduction and the recipient is taxed on the maintenance payment. Thus, if the tax plan is passed, it will be necessary for the Colorado Legislature to go back and revise the maintenance guidelines accordingly. In the end, it would result in lesser amounts of maintenance being awarded, because of the lost deduction for the obligor.
It is important to note that at this time, the tax plan has not passed. Thus, we will keep a close eye on this piece of legislation and the potential effects it could have on our clients.