How will the New Tax Law Affect Maintenance in Colorado?
Written by Catherine Reynolds
Colorado Maintenance Law Prior to New Federal Tax Law
Effective January 1, 2014, the Colorado legislator drastically changed the Colorado maintenance statute by adopting guidelines for maintenance awards based upon the incomes of the parties and the length of the marriage. See C.R.S. 14-10-114 effective January 1, 2014. The guideline amount of maintenance for parties with a combined gross monthly income of less than $20,000 per month was as follows: 40% of the payor spouse’s income minus 50% of the receiving spouse’s income, but the receiving spouse’s income could not be more than 40% of the parties combined income.
For example, if the payor spouse’s gross monthly income was $10,000 and the receiving spouse’s gross monthly income was $6,000, then the guideline amount of maintenance would be $400. (40% of $10,000 = $4,000)-(50% of $6,000 = $3,000) = $1,000 which is then reduced to $400 so that the receiving spouse does not receive more than 40% of the total income.
The payor spouse then received an above the line deduction on their tax return for all maintenance payments while the receiving spouse had to declare all payments as income for state and federal tax purposes.
New Federal Tax Law
On December 22, 2017, President Trump signed a bill into law that created sweeping changes to the Federal tax code. One change was the repeal of the long-standing maintenance deduction. Under the new law, the payor spouse cannot deduct maintenance payments from their gross income and the receiving spouse no longer claims the maintenance payments as income. This law affects divorce or separation instrument executed after December 31, 2018.
However, if a divorce or separation instrument was executed prior to January 1, 2019, the new provisions of the law do not apply unless there is a modification. If there is a modification then the new law only applies if the new instrument expressly provides that the maintenance deduction will no longer apply. So, if you have a maintenance award from prior to January 1, 2019, it will not be affected by the change in law until there is a modification.
Colorado Changes to Maintenance Statute
Due to the changes in Federal law, the Colorado legislator changed the Colorado maintenance statute to reflect the Federal law changes and provide a more equitable result for parties.
Under the new Colorado law, the receiving spouse received 40% of the total income minus their gross income. The receiving party will then receive 80% of this maintenance amount if the parties combined gross income is less than $10,000 per month or 75% of the maintenance amount if the parties combined gross income is more than $10,000 per month. So, using the same example as above the monthly maintenance amount would be $300 per month. (75% of 400).
The Colorado legislator attempted to offset the massive changes in the federal tax code while keeping the guideline amount standard for the State of Colorado. Unfortunately, this new tax code could hurt high earning payor spouses as they may end up paying more than 25% tax on their income.