By: Jessica A. Saldin
Starting August 8, 2018, there will some statutory changes being made to the Colorado Uniform Dissolution of Marriage Act (the main statute/law that governs Colorado divorce and custody cases). As these changes may have major impacts on your divorce or custody case, it is important to know what they are. A few of the statutes are undergoing minor word changes, which are not being discussed in this article. The major changes, which will be the primary focus of this article, affect the statutes governing spousal maintenance and child support.
C.R.S. 14-10-114 is the statute that governs maintenance (often called spousal support or alimony). As discussed in a prior blog post, the federal tax code is changing in 2019, with an impact on how maintenance payments are treated for tax purposes. It used to be that a payor’s maintenance payments were tax deductible to the payor and a recipient’s maintenance payments had to be claimed on the recipient’s taxes as income. Starting in 2019, the recipient will not have to declare maintenance payments as income; however, the paying party will not get a deduction for maintenance paid. As mentioned in the prior post, such was anticipated to have an effect on Colorado’s maintenance law because the formula was created with the understanding that maintenance would be tax deductible and taxable, respectively. As anticipated, the Colorado legislature has made changes to Colorado’s maintenance law to account for these federal tax changes.
The main change affects the maintenance formula in Colorado. The first change to the maintenance formula has nothing to do with the tax change. It appears to be a clarifying change that was long overdue. The maintenance formula used to be written with a complex formula indicating that the guideline maintenance amount would be forty percent of the higher income party’s monthly adjusted gross income minus fifty percent of the lower income party’s monthly adjusted gross income. However, the statute then would go on to clarify that, when added to the receiving party’s gross income, the guideline amount was not to result in the recipient receiving more than forty percent of the parties’ combined monthly adjusted gross income. That second part was known as the maintenance “cap.” In practicality, though, the first, fairly convoluted formula was unnecessary because the cap always controlled the guideline amount of maintenance. Therefore, beginning August 8, 2018, the statute has been changed to do away with the complex formula and simply calculates maintenance based on this “cap” formula.
If the maintenance award is still tax deductible to the payor and taxable to the recipient, that formula is the end of the calculations for the purposes of determining the guideline amount. If, however, the maintenance award is not tax deductible to the payor nor taxable to the recipient (please refer to the prior blog post to determine when this would be the case), the August 2018 statutory changes take the formula one step further. In that case, if the parties’ combined monthly adjusted gross incomes are $10,000 or less, the recipient spouse would receive 80% of the amount calculated using the cap formula, above. If the parties’ combined monthly gross incomes are $10,000-$20,000, the recipient spouse would receive 75% of the amount calculated using the cap formula, above. This was likely changed to try to factor the amount the recipient spouse would have paid for taxes, and the amount the payor spouse would have received as a credit from the deduction, and attempts to balance such as part of the formula. The formula is still simply a guideline amount, though, so some of the other statutory changes were to add the taxability of the maintenance payment into the factors the court can consider when determining what a fair and equitable amount of maintenance would be.
Another change coming in August 2018 changes both the maintenance statute and the child support statute (C.R.S. 14-10-115) in the way they define incomes for the calculation of the maintenance and child support amounts. Under the old statute, if a party was paying a pre-existing maintenance/alimony amount, that was deducted from that party’s income before calculating the maintenance or child support guideline amounts. That is still in place. However, it has been amended such that if the paying party’s pre-existing maintenance payments are not tax deductible, the amount paid by the party is multiplied by 1.25 and that resulting amount is what is deducted from the party’s income before calculating maintenance or child support. Similarly, if a party was receiving maintenance from a prior order/case, that amount was included in the calculation of that party’s income when calculating maintenance and/or child support. That also still stands, but a similar caveat has been added in that if that person’s maintenance received is not taxable, you take the amount of maintenance received by that person, multiple such by 1.25 and add the resulting number to the party’s income before calculating the maintenance and/or child support guideline amount in the current case.
Obviously, the goal from these statutory changes is to try to balance the effect the federal tax changes had on parties paying and receiving maintenance. There is no perfect formula as each person’s overall tax implications are different based on a variety of factors, but the changes are a way to ensure that one party does not receive a windfall from the tax changes, while the other suffers. As we see how these guideline changes actually impact maintenance and child support orders going forward, there may be a need for further statutory changes in the future.
In my next posting, I will give some examples of the new statutes in action, with the intent of adding clarity in a real-life, mathematical sense.