By: Jessica A. Saldin
In prior, recent blog posts, I overviewed both the impact the federal tax changes will have on maintenance (alimony) awards starting January 2019, as well as the revisions to Colorado’s maintenance and child support laws to account for the tax code changes. The purpose of this blog post is to provide concrete examples of the difference between the pre-August-2018 maintenance and child support laws and the new ones which started this month.
Since the statutory changes are going to have more of an effect on maintenance awards entered after December 31, 2018 (any maintenance awards entered before that date would remain tax deductible for the payor) this blog post will use the 2019 minimum wage amount for the first scenario. Beginning January 1, 2019, Colorado minimum wage increases to $11.10 per hour. This is most applicable for situations where a party is not working and can be imputed income (see prior blog posts to determine when this may be appropriate).
Scenario 1- Maintenance: Wife is imputed full-time at minimum wage- meaning her monthly gross income is $1,924. Husband’s gross monthly income is $5,000. If the parties were to enter into an agreement or the court enters the maintenance award on or before December 31, 2018, the guideline maintenance amount would be $845.60 owed from husband to wife (the parties’ combined monthly gross incomes equal $6,954; 40% of such is $2,781.60; subtracting out wife’s income of $1,924 leaves the $845.60 guideline amount). If the maintenance award is entered after December 31, 2018, the amount of maintenance would be $676.48 owed from husband to wife (because the parties’ incomes are $10,000 or less, if the maintenance is not taxable/tax deductible, the spouse receiving maintenance would receive 80% of the amount calculated under the guideline formula).
Scenario 1- Child Support: Continuing the numbers from scenario 1, the next question becomes, if child support is at issue in the case, how these numbers then impact the child support calculation. If the maintenance award is entered on or before December 31, 2018, the actual maintenance award will be deducted from the paying party’s income and added to the receiving party’s income to calculate child support (the child support worksheet software has a line to enter maintenance paid and maintenance received). So, in this scenario, if the parties agree to or the court orders the guideline maintenance amount, husband’s income for the purposes of calculating child support would be $4,154.40 ($5,000 minus $845.60) and wife’s income would be $2,769.60 ($1,924 plus $845.60). If the maintenance award is entered after December 31, 2018, and/or the parties modify a prior maintenance award and opt in to the new tax law, such that husband’s maintenance payments are not tax deductible, and the guideline maintenance amount is ordered, husband’s income for the purposes of calculating child support would still be $4,154.40 ($5,000 minus $676.48 multiplied by 1.25 which equals $845.60) and wife’s income for the purposes of calculating child support would still be $2,769.60 ($1,924 plus $676.48 multiplied by 1.25). This appears to be a hole in the statute as husband’s maintenance payment is lowered to account for the fact that it is not tax deductible but he still gets to deduct the entire amount under the prior formula before child support is calculated. Thus, it is almost as if there is a double-credit to husband for the loss of the tax credit. It is unclear if this is an intentional double-credit or simply oversight. Perhaps future statutory changes or clarifications will be made to account for such.
Scenario 2- Maintenance: Wife’s gross monthly income is $10,000. Husband’s gross monthly income is $5,000. If the parties were to enter into an agreement or the court enters the spousal maintenance order on or before December 31, 2018, the guideline maintenance amount would be $1,000.00 owed from wife to husband (the total combined monthly gross incomes equal $15,000; 40% of such is $6,000; subtracting out husband’s income of $5,000 leaves $1,000). If the maintenance award is entered after December 31, 2018, the guideline amount of maintenance would be $750 owed from wife to husband (because the parties’ incomes are between $10,000 and $20,000 if the maintenance is not taxable/tax deductible, the spouse receiving maintenance would receive 75% of the amount calculated under the guideline formula).
Scenario 2- Child Support: If the maintenance award is entered on or before December 31, 2018, assuming the guideline maintenance amount is awarded, wife’s income for the purposes of calculating child support would be $9,000 ($10,000 minus $1,000) and husband’s income would be $6,000 ($5,000 plus $1,000). If the maintenance award is entered after December 31, 2018, and/or the parties modify a prior maintenance award and opt in to the new tax law, such that husband’s maintenance payments are not tax deductible, and the guideline maintenance amount is ordered, wife’s income for the purposes of calculating child support would be $9,062.50 ($10,000 minus $750 multiplied by 1.25 which equals $937.50) and husband’s income for the purposes of calculating child support would be $5,937.50 ($5,000 plus $750 multiplied by 1.25). As with the first scenario, the paying party still gets a larger credit than they are actually paying; however, it is not quite as large because the paying party is only paying 75% of the maintenance guideline amount, as opposed to the 80% from scenario 1 due to the parties’ higher combined gross income.
The unfortunate reality of the tax code changes is that calculating child support and alimony will be more complex, at least until the 2018 changes become the new norm. Conversely, our Legislature has at least acted, in rapid fashion, to address them.
