Now is the time to contact a family lawyer to find out if the new guidelines help or hurt, in terms of one’s personal cash flow.
Updated March 5, 2019
On December 28, 2018, new Pennsylvania spousal support rules were issued that took effect on January 1, 2019. Litigants and lawyers both need to understand the new Pennsylvania Guidelines. If it is time for an award of support, everyone who gets or pays spousal support (or alimony pendente lite, “APL”) will be affected by the change to the support rules.
Since 1980, a dependent spouse can get support from the income superior spouse during the pendency of the divorce called alimony pendente lite (APL). There are some limits as to the length of time and in a few cases, the dependent spouse will not qualify. In most cases, however, when a married couple is separated, spousal support applies; if a divorce is pending, APL applies regardless of the claim that the recipient is at fault.
The biggest change in spousal support/APL: new formula and approach
The biggest change in calculation of spousal support/APL was triggered by the change in the tax laws. Effective January 1, 2019 new orders for spousal support, APL and alimony no longer have special tax treatment. Before that date, an order or signed agreement would lead to the inclusion of the amount in the taxable income of the recipient and a tax deduction for the payor.
That meant that if someone paid $1,000 a month in spousal support, APL or alimony, the payor got a $12,000 tax write-off and would save federal taxes on $12,000 of income. In comparison, the recipient would have another $12,000 of taxable income so the receipt of the money came with a price tag.
The purpose of the rules is to offset the change in the tax impact. No longer will a new spousal support, APL or alimony agreement or order trigger the tax impact.
If the couple was still married, they may have continued to file joint tax returns. Neither took the tax write-off, or paid taxes on the amount received. Often the benefit of filing jointly exceeded the special tax treatment, therefore husband and wife never felt the “benefit” or the “bite” of the shift in the tax effect.
The change in support rules means the amount of the payment is going to drop to adjust for the absence of the tax benefit or bite. If a person was paying spousal support, APL, or alimony and enjoyed that extra deduction, that payor will continue to keep the tax benefit under the old tax laws because it is based on a pre-2019 order or agreement. The payor might not want to modify the order in 2019. A new order will not continue the tax deduction benefit. In some cases where the payment was significant and the tax benefit was significant, the payor will be disappointed by the new guidelines. The discounted obligation may not be comparable to that payor’s after tax benefit.
The 2nd critical difference under the new rules: reallocating the “extras”
There is a second critical difference in the approach to spousal support under the new Rules. The new Guidelines provide for the initial calculation of spousal/APL and then the support court will shift that amount of money from the payor to the recipient, and the payor will have lower net income for the purpose of contribution to expenses in addition to the monthly Guideline amount. And the recipient is deemed to have higher net income. This will now change the percentage contribution to extra expenses. The extras include medical insurance premiums and uncovered medical. When there are children, the adjusted percentages apply to child care, educational needs and some extra curricular expenses.
For example, in the past, if the payor made four times as much money as the payee, assuming $4,000 per month net of taxes, while the recipient earned $1,000 net a month, the payor was obligated to pay 80% of medical insurance premiums and 80% of medical expenses (which are in excess of $250 per year). For children the payor also owed 80% of child care, necessary educational expenses, and some extraordinary expenses that were found to be appropriate for the family. That percentage contribution has now changed for every new case under the January 1, 2019 amendments to the support rules.
Using the hypothetical, if the income superior spouse nets $4,000 per month, and the lower income spouse nets $1,000 a month, with the new formula the dependent spouse will get $700 per month in spousal support. The dependent spouse will then be assigned income of $1,700 a month, and the income spouse will have income of $3,300 per month. The income superior spouse will no longer owe 80% of medical insurance and the extras, but only 66%.
With the shift in relative income, the support guidelines for a family with combined income of $5,000 will pay combined $1,415 per month for two children. For this hypothetical, assume the family medical insurance is employer provided and assume payor has partial custody, under 40% of the time. Under the old approach the higher income spouse would pay 80% of the Guideline child support amount; that parent would owe $1,132 to the dependent spouse. In 2019, due to the shift of income as a result of spousal support/APL, the income spouse only owes 66% or $934 a month. The total (spousal and child) under new rules is $1,634. Under old rules the total was about $1,664. A decline of $30 appears a modest difference.
Parents will feel the bigger impact of the shift in percentage contribution to extras like medical insurance, educational needs and child care. If educational and child care total $2,000 per month the split is now $1,320 by payor; $680 by lower income parent. Compare that with $1,600 or $400. The contribution to medical and extras will shift significantly.
For spousal support without children, the payor owes $920 under the new Guidelines, compared with $1,200 under the old rules. If the payor owed taxes based on a 25% tax bracket the drop is not so significant, however, the dependent spouse now owes 38.4% of medical insurance and uncovered medical (after the first $250 per year). The payors who were at a higher tax bracket lose out with non-deductible payments, but get help on the medical contribution.
In summary, if you only pay or get child support, the changes in the rules are relatively modest. In contrast, the shift in the approach to payment of spousal support or APL changes the amounts for all. Everyone has the right to ask the support orders be updated under the amended rules.
The change in support rules means the amount of the payment is going to drop to adjust for the absence of the tax benefit or bite. If a person was paying spousal support, APL, or alimony and enjoyed that extra deduction, that payor will continue to keep the tax benefit under the old tax laws because it is based on a pre-2019 order or agreement. The payor will not want to modify the order using the 2019 rules. In cases of significant payment of spousal support/APL beneficial to the payor after-tax in 2018, the payor will be disappointed when replaced by alimony in 2019. It is expected post-2018 alimony will not qualify as a modification of pre-2019 spousal support/APL.