Tax Treatment of Spousal Maintenance II

January 23, 2018 by Brett Jones

Will the new federal tax law alter application of New York’s spousal maintenance formula?


Last month when we posted about the tax treatment of alimony (called “maintenance” in New York), the new federal tax bill had not yet passed in both houses of Congress. Now it is signed into law. Good news and bad news.


Good news first. When we wrote December’s post, any change in tax treatment of maintenance would have been effective January 1, 2018. However, that is not what happened. This month, the law is passed and its provisions on this subject are not effective until January of 2019. So we have a year during which at least this can be expected to happen: those who are helped by the new tax treatment will  be trying to delay their divorces and those who are hurt y the new tax treatment will be trying to accelerate their divorces.  


The bad news is the same as the good news. 2018 will be a year of struggle to speed up and slow down divorce negotiations: spouses who are served by the new law will want to delay their divorces and those who are served by the present law will want to finalize them. So which of these parties are you, a delayer or an accelerator?


Let’s look at how this works. A writer named Ethan Wolff-Mann wrote an article (which you can read here) identifying some of the variables that will be in play during 2018. He gives an example of  a soon-to-be ex spouse who will be paying $100,000 a year in maintenance under the old law. This “monied spouse” will get a deduction off the top so that, in the highest tax bracket of 40%, he or she is only out $60,000. On the other hand, the person receiving that $100,000 pays tax on it, so assuming a 15% tax rate, nets about $85,000.  


Now take the same example in 2019. If the paying spouse has the same out-of-pocket cost of $60,000, that would mean the receiving spouse gets the $60,000. Period. On that basis who loses and who wins? It is certainly possible to argue both spouses lose. Because of the non-deductibility and the decreased income, can it be argued the government wins? As we discussed last month, maybe the IRS.

Wolff-Mann goes farther, pointing out that states like New York that use formulas to calculate alimony may or may not change them to comport with the new federal law. New York’s formula is relatively new, having come into effect only two years ago. This leaves any adjustments to the courts for the time being. New York courts can deviate from the formula if its application produces results that are “unjust and inappropriate.” This invites courts to deviate from the formula and set payments that take into account the increases in cost to the paying  party and the net income to the receiver.


Will New York courts respond to that invitation? Wolff-Mann quotes a New York lawyer who says  that some will and some won’t. If this happens, two couples could be divorcing in the same court under different judges and get different results, even if, hypothetically, they agree to the very same settlement terms. This does nothing for consistency in the law (but it does make 2018 a year in which the self-determination available to parties who choose divorce mediation or collaborative divorce is even more attractive than usual, but that’s another point).  


Time will tell the impact of the new federal law on New York divorces. While the dust settles, advice of counsel will be even more important than usual  because, at the very least, this aspect of divorce is less predictable than previously.


MEDIATION – Can I also have my own attorney?

January 5, 2018 by Brett Jones

The title of the children’s book It Takes a Village could apply just as easily to divorce. Psychologists, social workers and financial advisors all have perspectives that may be useful to divorcing spouses, and many practitioners in these disciplines have successful businesses as divorce coaches. However, one profession that’s often overlooked when choosing a coach is lawyers.


Most people think of lawyers as adversarial only. If a divorce is acrimonious, it’s common to want the “meanest matrimonial lawyer, one who eats raw meat for breakfast.” This is a stereotype, one that’s largely outdated and often ineffective. Increasingly, divorcing spouses are looking for better process options to divorce, including mediation.  Can a spouse in mediation also have their own attorney?  Does the attorney participate in the mediation?  How would this work?


We are often asked to coach parties through mediation which they’ve chosen as their divorce process.   This may help a spouse to feel more “protected”, and provides a spouse with their own attorney to provide legal advice and guide them through each step of the mediation process.  For example, the couple has reached agreement on a parenting plan, division of their household goods and who will pay for medical insurance coverage, but they’re stuck on division of a pension or a 401k. They’re not stuck because they disagree; they’re stuck because they don’t know if what they’re asking for is reasonable. They may experience diminished trust in each other and may be concerned they’ll be taken advantage of. Mediation has enabled them to agree on many things but progress has slowed because one or both parties, feeling uncertain, find themselves hesitant to discuss a few remaining issues. A lawyer as coach can jar these situations loose by providing knowledge and perspective.


To optimize a lawyer as your divorce coach, it works best to have the lawyer on board during all or most of the mediation. This does not mean your lawyer/coach needs to accompany you to every mediation session, although s/he can. Most times, lawyer/coaches are consulted between mediation sessions if a divorcing spouse has a legal question. Good mediators encourage this (though many mediators are lawyers, they would be ethically compromised by giving legal advice to either party in mediation). Therefore, if a legal question arises in the course of mediation, one or both parties may wish to check with their respective lawyer/coach between sessions. If you do not engage a lawyer/coach for the duration of the mediation, you can bring one into the process at any time.


One or both parties in divorce mediation may be coached by a lawyer. Lawyers who excel in this role are collaborative without being overly concessive, and have a grasp of the overall settlement picture. Experience in the role also counts for a lot. Lawyers whose experience is exclusively as an adversary or litigator may not adjust readily to representing or coaching clients who choose mediation for their divorce. A lawyer/coach must recognize that a client may be well satisfied without cleaning the spouse’s clock, so to speak; divorce settlement need not be punishing to work well.


We have coached a number of parties who’ve chosen mediation. Not only has it been helpful in expediting divorce, it’s also more economical and less adversarial. The experience has been not only effective but satisfying for lawyer/coach and client/coachee.