New York Courts are Giving Out More Maintenance Than the Law Ever Intended
In June 2015, maintenance law was changed in New York State when the Senate passed new legislation that set forth a statutory formula to determine the duration and amount of spousal maintenance to be paid by the higher income spouse to the lower income spouse upon divorce.
This law, which would apply to divorces filed after January 25, 2016, was intended to provide a clear indication of what the appropriate maintenance would be from the higher income spouse to the lower income spouse. The court created a specific statutory formula located in Domestic Relations Law § 236.
Based on this law, our law firm has created a calculator that can determine exactly how much child support and spousal maintenance the law provides based on both spouses' incomes and the length of the parties' marriage. This calculator is the product of thousand of man-hours and yields precise and accurate results. Although our firm has created an avenue to easily obtain these calculations, the challenge with this law arises from the tax consequences on the payor spouse.
The statutory formula was established upon the assumption that the payor would receive a tax deduction based on the amount of maintenance they are required to pay, and maintenance received by the payee would be taxable income. This assumption was founded on long time Federal Laws which allowed the payor to receive a tax deduction on his or her maintenance obligation and called for the payee to pay taxes on the maintenance he or she receives, however, these laws have since changed.
The issue that arises with the statutory maintenance formula is that after the law came into effect, the Federal Government changed the tax code which resulted in the payor spouse's inability to claim a tax deduction on the maintenance they are required to pay, coupled with the payee spouse receiving maintenance as non-taxable income. This seems to have never been contemplated by the New York State Legislature while creating the statutory maintenance formula. In face, it is as if the statutory maintenance formula is already stale because of the burdensome tax implications on the payor spouse and the non-taxable maintenance that is received by the payee spouse.
The examples set forth below demonstrate the effect of these tax implications:
|Example A||Payor Spouse makes $207,351.00 per year and has a maintenance obligation of $1,000.00 per month. Payor Spouse is taxed at the rate of 35%, meaning in order to satisfy the maintenance obligation, Payor Spouse must earn $1,538.46 for every $1,000.00 paid to Payee Spouse.|
|Example B||Payor Spouse makes $518,401.00 per year and has a maintenance obligation of $1,000.00 per month. Payor Spouse is taxed at a rate of 37%, meaning in order to satisfy the maintenance obligation, Payor Spouse must earn $1,587.30 for every $1,000.00 paid to the Payee Spouse.|
Located in Melville, Bryan L. Salamone & Associates, P.C. delivers exceptional representation to clients going through a divorce on Long Island and in other parts of New York. For a free telephone consultation, please call 1.631.479.3839 or contact us online.