Introduction

Under longstanding tax law, maintenance was tax deductible by the payer and taxable income to the recipient. By using maintenance, families could shift income from a higher earning spouse’s upper tax rate to the lower earning spouse’s often negligible tax rate. As a result, families had more cash available to divide as part of the divorce settlement. Due to recent changes in federal tax law, original maintenance (or alimony) orders entered after January 1, 2019 will no longer be tax affected. As a result, a valuable divorce planning tool has vanished. This article provides an overview of our former law and describes the new maintenance law, along with its implications for divorcing Illinois families.

Synopsis of Recent Changes to Illinois Maintenance Law

Illinois’ law regarding maintenance can be found at Section 750 ILCS 5/504 of the Illinois Compiled Statutes. This statute relies on legislative guidelines to determine both the amount and duration of maintenance. Illinois’ guideline approach to determining maintenance is relatively recent. Until 2015, each trial judge had the discretion to determine an appropriate amount of maintenance based on a number of equitable factors. That paradigm changed with the adoption of guidelines, which became effective in 2015.

The Advent of Guidelines

Effective January 1, 2015, if a court determined that maintenance was appropriate and the couple’s combined income was less than $250,000 per year, the judge was to apply legislative guidelines to determine the amount and duration of maintenance. The amount of maintenance was determined using the following formula: 30% of the higher income earning spouse’s gross income minus 20% of the lesser earning spouse’s gross income. By example, if the wife earned $100,000 per year and the husband earned $30,000 per year the maintenance amount would be $24,000 per year (30% of her $100,000 minus 20% of his $30,000 = $24,000). Again this sum would be deductible by the payer wife and income taxable to the recipient husband. The amount of the guideline maintenance was capped however. If after paying the maintenance, the total gross income of the recipient exceeded 40% of the combined gross income of both parties, an adjustment was required to keep the maintenance under that ratio.

Duration of Awards

Prior to 2015, the duration of the maintenance awards was also within the discretion of the trial judges. Typically maintenance would be set for interim periods and reviewed to determine whether the payment terms should continue as is, or be adjusted based on the circumstances at the time of the review. However it was not uncommon to make the maintenance awards indefinite and subject to modification if there was a later change in circumstance. Fixed term awards were not allowed under the pre 2015 law.

Under the 2015 amendments, the formula for determining duration of maintenance was also reconfigured. The new approach applied a formula based on the length of the marriage. For marriages lasting 0-5 years the duration of the maintenance was to be .20 of the length of the marriage. For marriages of 5-10 years the term of the maintenance was .40 of the length of the marriage. Marriage of 10-15 years set the duration based on .60 of the length of the marriage. For marriage of 15-20 years the duration was to be .80 of the length of the marriage. For marriages of 20 years or longer the maintenance was deemed permanent or to be parallel to the length of the marriage.

While guidelines replaced the judicial discretion inherent in the former law, the judge was still free to reject the guidelines if the he or she determined they were inequitable or inappropriate. In practice, however, the guidelines are rarely disregarded.

2016 Amendments

Largely to correct ambiguities in the 2015 maintenance law, the statute was amended in 2016. Under the 2016 amendments, the durational term was clarified to define the length of the marriage from the date of the marriage to the date of filing the case. The amended statute also remedied ambiguities in the 2015 Act. For example, marriages of 5-10 years set maintenance terms based on 40% of the length of the marriage. Marriages of 10-15 years based the awards on 60% of the length of the marriage. What if a marriage is 10 years? Is the duration .20 or .40? Under the amendments the durational periods were clarified to remedy that confusion.

2017 Amendments

The legislature again acted to further refine the maintenance statute the following year. Under the 2017 amendments the guideline cap of income (formerly $250,000) was raised to $500,000. Also the durational terms were broken down to be more specific:

.20 of the length of the marriage for marriages lasting less than five years;
.24 of the length of the marriage for marriages of more than five years but less than six years;
.28 of the length of the marriage for marriages more than six years but less than seven years;
.32 of the length of the marriage for marriages more than 7 years but less than 8 years;
.36 of the length of the marriage for marriages more than 8 years but less than 9 years;
.40 of the length of the marriage for marriages more than 9 years but less than 10 years;
.44 of the length of the marriage for marriages more than 10 years but less than 11 years;
.48 of the length of the marriage for marriages more than 11 years but less than 12 years;
.52 of the length of the marriage for marriages more than 12 years but less than 13 years;
.56 of the length of the marriage for marriages more than 13 years but less than 14 years;
.60 of the length of the marriage for marriages more than 14 years but less than 15 years;
.64 of the length of the marriage for marriages more than 15 years but less than 16 years;
.68 of the length of the marriage for marriages more than 16 years but less than 17 years;
.72 of the length of the marriage for marriages more than 17 years but less than 18 years;
.76 of the length of the marriage for marriages more than 18 years but less than 19 years;
.80 of the length of the marriage for marriages more than 19 years but less than 20 years;

For marriages more than 20 years, the maintenance was to be for a duration equal to the length of the marriage or for an indefinite term.

Before lawyers and litigants could absorb the full breadth of the new laws, Congress announced its changes to longstanding maintenance tax law, necessitating yet more changes to the statute.

Current Law

The 2019 amendments to the maintenance statute apply to original maintenance orders entered after January 1, 2019. Any orders entered prior to that date are subject to the law from the time they were entered and continue to be taxable/deductible indefinitely. If, for example, a maintenance order was entered in 2017, it will continue to be taxed under the former tax law (taxable/deductible) and if is later modified, the 2017 maintenance law applies. Even after it is modified, the modified order continues to retain the favorable tax treatment unless the parties expressly agree otherwise in the amended order.

The amendments generally follow the format of the earlier versions of the statute. However the 2019 amendments now base maintenance on the net income of the parties (rather than the gross formula under prior versions). Now maintenance is to be set by taking 33 1/3% of the net income of the higher earning spouse minus 25% of the net income of the lower earning spouse. The amendments continue to require a preliminary determination of whether maintenance is appropriate in the first place. Guidelines are not automatically applied without that initial finding.

The requirement that the amount of maintenance paid not leave the recipient with more than 40% of the combined net income of the parties continues as in previous versions of the statute. Also, parallel to the former Act, the guidelines only apply to families with combined gross income of $500,000 or less and are inapplicable if the paying spouse has an obligation to pay child support and/or maintenance from a prior relationship. Finally and new in the 2019 amendments, if the maintenance and child support awards combined exceed 50% of the paying parties’ net income, the court can deviate from the guidelines and enter an order for a lesser amount.

Determining Net Income

The amended Act borrows the definition of net income from our child support statute (750 ILCS 5/505). As applied to maintenance, net income is defined as gross income from all sources minus taxes, to be determined either by using a standardized tax amount or an individualized tax amount. The court is to use the standardized tax amount except under the following circumstances:

Where the parties agree to calculate taxes based on an individualized amount;
If the court conducts a summary support hearing and an eligible party opts in to the individual computation method, or if;
Maintenance is determined at an evidentiary hearing.

While calculations using the standardized rates provide simplicity, they often do not reflect the actual net income of a party. For self-employed persons, the determination of both gross income and net income can be challenging. Under the child support statute, again incorporated into the maintenance law, the court is to take the gross income of the business entity minus reasonable and necessary business expenses to calculate gross income of the owner–an easy definition for a difficult task. Then it must be reduced by appropriate tax withholding.

In practice, courts often rely on expert witnesses to calculate the net income of a self-employed person. Generally the court will look to actual benefits derived from the employment: W-2 income, K-1 distributions and personal expenses paid by the business. Again this task can be challenging due to the inherent ambiguities in determining the gross and thus net income of a self-employed person.

Other Things to be Aware of:

1. The change in law in and of itself will not serve as a basis to modify an earlier order. In other words, one cannot rely on the change in law to modify an earlier order. One needs to show an independent change in circumstances to do so.

2. The 2019 amendments clarify the categories or types of maintenance (referenced by case law but not clearly set forth in prior versions of the Act).

A. Fixed Term-Maintenance
B. Indefinite Maintenance
C. Reviewable Maintenance

Fixed-term awards are for a set period and terminate at the end of that period. Indefinite awards are just that, indefinite. They will continue until a later order terminates or adjusts the earlier payment based upon some future change in circumstance. A reviewable order is to be in place for a finite period and then reviewed to determine its continuing propriety. Judges will need to specify the category to apply to all future maintenance orders.

3. The durational periods set forth in the 2017 amendments continue to apply to original orders after January 1, 2019. Again as mentioned above, the judge could decide to make the durational term either fixed or reviewable. If the judge decides to reject guidelines, which he or she may do with appropriate circumstances, the judge will need to clearly identify the category of maintenance when setting the amount.

Conclusion

As a result of the various legislative changes building on each other, a full understanding of the recent amendments require an understanding of past versions of the statute. The legislature and courts are enamored with the use of guidelines despite this author’s reservations. Nevertheless, they are here to stay. The regrettable loss of maintenance as a tax deduction required further revisions. And where inappropriate, a judge is free to reject the guidelines although again, in the author’s experience this rarely happens. Undoubtedly in most cases, families will have less as a result of the loss of the deductibility of maintenance. But with wise judges using all of the resources at his or her disposal, hopefully equitable results will follow.

Steven N. Peskind is the Principal of Peskind Law Firm. The firm (www.peskindlaw.com) practices family law throughout the state of Illinois. He can be reached at steven@peskindlaw.com.