We know that under the federal Tax Cuts and Jobs Act of 2017 (TCJA) alimony instruments executed before December 31, 2018 will carry over deductibility when modified thereafter so long as the parties (or the court?) don’t opt out of that treatment. While we all hope that we can successfully maintain this important tax leverage for the sake of restructured families by incorporating existing temporary (interlocutory) orders into 2019-and-later agreements, a question (among many) that continues to nag is, just how malleable is this rule?
It seems clear that if one modifies former Spouse A’s alimony by reducing the sum or increasing it, deductibility remains intact.
I also assume that if we change former Spouse A’s alimony from an expressed sum to a formula, in whole or in part (i.e., $5000 per month to .325 of gross pay, or $5,000 per month to $4,000 per month plus .325 of future bonuses) deductibility is not jeopardized.
And, if former Spouse A’s alimony durational term is reduced or extended, there seems to be no reason why the opt out rule should not apply.
But, here is the payoff question:
What if former Spouse A loses her job, former Spouse B’s career has taken off, and the modification shifts the payment obligation from A to B, is deductibility still available for this new obligation?
If this sounds a bit familiar, we wondered in an earlier blog entry if the durational limits of the Massachusetts Alimony Reform Act (eff. 3.1.12) apply to one spouse, or to both when they trade alimony places. As in, if the presumed duration is 7 years, and halfway through, the alimony obligation shifts, does the clock re-set, or does the second payor get credit for the former payor’s time served?
In an era of 2 partner family income predominance, this is not a far-fetched scenario — and now we have to worry about deductibility, too.
What do you think?