So Talking About Applying Either Substantial Increase Or Decrease In Income, Do They Also Apply To Maintenance Or Alimony As So Many Know It?
Yes, you can get a post-decree modification of your maintenance obligation. Either spouse can apply if there’s been a substantial change in circumstances. Some maintenance awards are for a specific amount of time, and others are indefinite. It was calculated in the past based on lifestyle, and the judge would determine the number of years you should receive maintenance based on the number of years you were married. Each judge had their calculation based on your lifestyle and the number of years you have been married. It resulted in a maintenance award from the judge in the past few years, (2017 and before) of a percentage of income plus a number of years that maintenance will continue. Sometimes maintenance continued for seven years. The judge also got to determine whether the maintenance was reviewable, meaning at the end of 7 years, you would have a hearing to determine if you need maintenance going forward. Other times, maintenance was terminated after the period. The judge made the determination of what percentage of gross income was paid for maintenance, and the judge made the decision how many years maintenance lasted for and, in some cases, indefinite.
Before 2017, maintenance was considered income to the person receiving it, and it was deductible on an income tax return to the person paying it. It reduced the payer’s taxes or income, reduced his income and therefore reduced his taxes, increasing the payee’s income. Maintenance was considered income and deductible. Now, the IRS has determined that people were shifting income, and the person making the most money was also in the biggest tax bracket. By shifting that income to a lesser earning person, the IRS was losing out on taxes, and they didn’t like that. Since 2017, maintenance is non-deductible to the payer, and it is not income to the payee. It’s not taxable for the payee. This means it’s based on net income.
So as you can see, in a post-decree matter, if the judgment was from before 2017 and they come in to modify it, there’s a concern that they might lose that tax benefit. The IRS has determined that if people have a taxable maintenance arrangement before 2017, they can continue that, or it’s grandfathered in going forward. Even if someone comes in to get their maintenance amount or the length of their maintenance modified, they can still keep maintenance that is taxable to the payee deductible by the payer.
When they come in for a change in circumstances, it’s just like child support. If they can prove that the income has gone up or down by 10%, then that would be considered a substantial change in circumstances that may justify modifying the amount of child support. In cases where the person who’s receiving maintenance gets a job, and their income goes up, maintenance is sometimes reduced because they’ve got other income to help pay their living expenses.
In Illinois, we have two different formulas for maintenance. If it is gross maintenance, meaning it is maintenance paid before taxes, then it’s 30% of the payer’s gross income according to the statute. If, in the past, the payer who is paying 20% as maintenance because his maintenance obligation was calculated before 2017, when they come in on a substantial change in circumstances, the judge is likely to use the new statutory guidelines to calculate maintenance going forward. Each client has to think about what the new statute says and the new percentages because if they were paying 20% before their gross income and claiming a substantial change in circumstances, they might have to pay more maintenance. After all, the new statutory formula is 30% of the payer’s income is less than 20% of the payee’s income. If the payer is making a large amount of money and the payee isn’t making very much money, (which is often the case in the maintenance situation) moving from 20% up to 30% will not be offset by subtracting 20% of the payer’s income.
In the event that this is a post-decree matter, either way, once you claim a substantial change in circumstances, the court is obligated to apply the new statute unless the language in the first judgment says that the percentage obligation cannot be modified. There is language in some divorce decrees that say that the amount of maintenance is non-modifiable. So in those cases, when you came in on a substantial change in circumstances, the court would deny the request for a modification because even if they were receiving more income, the court would say that it can be calculated based on applying the percentage that’s already in the document.
As far as a maintenance situation goes, a change in financial circumstances is a little tricky. The spouse paying maintenance is rarely forced to pay maintenance on income above what they made during the marriage. We call it a cap on income for purposes of maintenance. Even if a cap isn’t written in the marital settlement agreement, it is rare for the payer to have to pay on income that exceeds the amount he made on an annual basis during the marriage because the maintenance statute says that the purpose of maintenance is to allow the other spouse to live in the lifestyle that they experienced during the marriage.
Suppose the wife who is paying maintenance made up to $500,000 during the marriage. In that case, if she’s making a million dollars and her husband brings her into court on a substantial change in circumstance, petition to modify the spousal support or the maintenance. The judge is likely to say they will not give you a percentage of maintenance on any income over $500,000 because that would be a windfall to you and would not be consistent with the amount of money you were used to receiving during the marriage. Some people put a cap on the amount of income for maintenance purposes right in the judgment by saying, “During the marriage, wife only made $500,000 a year and therefore, will not be required to pay maintenance on more than $500,000 per year.” Other times, the idea of a cap comes up when there’s a post-decree petition to modify maintenance. At that time, the person representing the wife or the person paying maintenance argues that maintenance should not be calculated on an amount that’s more than she made during the marriage.
The case law on it isn’t as clear as I wish it were, so the courts get to decide. Still, we’ve found that the courts are very open to that argument because the statute does say that maintenance intends to provide a stream of income similar to what the person received during the marriage. This is different than child support; the purpose of child support is to allow the child to live with both parents like what the child would have received or live like if the parties had not gotten divorced. This means the future income is relevant because if the parties had been divorced, the child would have benefited from the other spouse’s income until they were 18. In a maintenance case, it’s the lifestyle that the parties enjoyed during the marriage. That is a significant difference. You never cap income for child support purposes unless you can argue that it would be a windfall. There are cases involving athletes, lotteries, and unusual circumstances where it’s been decided that child support shouldn’t be paid over a certain amount. Each one is very fact-specific to the case, but there are situations where the parties had a certain lifestyle during the marriage. If somebody won a lottery of $42 million and determined that that type of winning had to go to the mother or the other parent of the child, it would be unfair and known as a windfall.
There were also several basketball players and baseball players that have litigated this issue on things like signing bonuses of millions and millions of dollars, saying that I should get to keep the signing bonus and that she should only receive 20% of my normal income. The courts have agreed that some of those would be a windfall, and they’ve not given them to the child. But the majority of the decisions regarding child support are in favor of the child receiving more money. Those cases are unusual. Most of the time, the court protects the child or the person who has the child most of the time. They are very careful to protect the child and, in doing so, often protect the parent who has the child most of the time.
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