Divorce Mediation Blog

GOP Plan to End Alimony Deductibility: Time to reform the Alimony Reform Act?

Monday, November 20, 2017

Levine Dispute Resolution - Alimony

The House GOP seems to think that repealing §215 of the Internal Revenue Code is a good idea. We have long believed that there are probably too many alimony-paying lawyers in Congress to let this day ever come. It probably won’t, but if it does, it will plunge the Alimony Reform Act (ARA) (eff. 3.1.12) into crisis. Either way, the legislature needs to respond.

M.G.L., ch. 208, §48 defines “alimony” as: “the payment of support from a spouse, who has the ability to pay, to a spouse in need of support for a reasonable length of time, under a court order”. Nothing about tax impact. The drafters, like us, clearly took deductibility under federal and state law for granted.

Moreover, M.G.L., ch. 208, §53(b) defines a “reasonable and lawful” presumptive formulation for general term alimony, stating the general term alimony should generally not exceed the recipient needs, or 30-35% of the difference between the parties’ applicable gross incomes.

This statutory range makes the same once-safe assumption: that IRC §215 allows parties to leverage dollars to the family’s benefit, by shifting income tax from a higher progressive tax rate of the payor, to the payee’s lower rate.

If the alimony deduction dies, it will take the viability of §53(b) along with it. Yet, the zombie statute will persist, entitling litigants to rely on it, despite its infirmity; unless and until the state legislature takes corrective action. This will not happen overnight – these things never do – and in the meantime… Sophisticated divorce agreements have “savings” clauses, which help people adjust alimony sums in the unlikely event of a deductibility repeal, and the GOP plan grandparents existing judgments, at least until modification. But modification cases and new divorces won’t get off so easy.

Maybe, the legislature should take the GOP proposal as a warning shot, at least. The legislature could act pre-emptively. Sections 48 and 53(b) at least need reformulation, regardless of Congress’ ultimate action. We should convert the assumption of the tax-shifting leverage of continued deductibility for alimony into a clear predicate for the ARA, with provisions to address the alternative.

And, if the unthinkable happens, it’s better get started now.

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