"If the only tool you have is a hammer, everything looks like a nail."

It is true, I have a QDRO-hammer. And maybe QDRO-tunnel vision… is it a problem I named my cat “QDRO”? But so much has happened in QDRO-law since my last post that you would think I was making this stuff up, or maybe that the world is ending. Or maybe both.

The legislative and case law QDRO-updates in this post and the three to follow have piled up on me since mid-December. At this point, I have post-it notes to cross reference other post-it notes. My note-taking habits aside, this four-part 'Hammertime' blog series is my best attempt to summarize the important QDRO-related happenings that have occurred over the past two months.

Let's get to it, then. Hammertime!

Federal Legislative Update: Repeal of Deduction for Alimony Payments

By now, it is no secret. The Tax Cuts and Jobs Act of 2017 (P.L. 15-97) was signed into law on December 22, 2017. This legislation brings with it significant tax reform, the likes of which has not been seen in decades. The changes will affect individual taxpayers, business owners, and corporations. For family law attorneys, consideration of the sweeping changes to the deductibility of alimony is critical. In short, for couples divorcing or separating after December 31, 2018, receipt of alimony will no longer be considered income to the payee and deductible by the payor (and therefore income used to pay alimony will be taxed at the rates applicable to the payor). Further, agreements or orders executed on or before December 31, 2018, but modified after December 31, 2018, may be amended to expressly provide that the treatment of alimony payments, prospectively, should fall under the Tax Cuts and Jobs Act's tax provisioning. See Section 11051 of the Act (click on the link above, and simply type “11051” into the “find” or “search” field in your browser).

There is a lengthy – and dare I say interesting – history surrounding the taxability and deductibility of alimony, with very real repercussions for families. A great article I flagged during the legislative debate can be found here . The article highlights the potential loss of incentives in negotiating alimony, as well as the loss of cash to pay alimony, in some cases, as a result of higher aggregate tax liability.

Since I have a QDRO-hammer in my hand, it seems like a good time to point out that, under IRC §§ 414(p) and 402(e)(1)(A) (which are unaffected by the Act), a QDRO assignment for spousal support to an alternate payee who is a spouse or former spouse of the plan participant would still resemble the current tax liability scheme (i.e., taxable as income to payee, not taxable as income to the payor). Keeping in mind the “Recapture Rule” under IRC § 71(f) (which I believe faces uncertainty in the near-future, despite being also unaffected by the Act), QDROs have the potential to re-establish negotiation opportunities for alimony that will be otherwise cut off starting in 2019. Rest assured that this is an area of continued interest to me, and I will keep sharing (and sharing, and sharing…).

Hammertime Installments:

Special "Shout Out" to Cleveland Wilson for his help in compiling the QDRO case-law updates that made 'Hammertime' possible.

Blog Posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

Hammertime - Part One: The Tax Cuts and Jobs Act

"If the only tool you have is a hammer, everything looks like a nail."

Hammertime Installments: