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Illinois Law May Prohibit Unallocated Maintenance in Divorce

The law changes frequently.  There are some major changes being proposed in the legislature right now including a complete rewrite of the laws regarding divorce.  One major change is a complete prohibition on using unallocated maintenance.

Normally child support is not taxable to the recipient.  Maintenance is taxable to the recipient and deductible to the payor.  Unallocated maintenance combines child support and maintenance such that the entire amount is deductible.

The reason why this is important is the difference in tax rates after a divorce.  The person who earned most of the income is in a much higher tax bracket than the historical primary caretaker for the children.  As an example, in a recent case, I projected that because of the differences in tax rates, an unallocated support award instead of regular child support would have increased total post-tax cash available by $1,000 per month.  That benefit could be split between the parties.  Both the husband and the wife would have $500 per month more than if they used regular child support.

This is what the statute prohibits.  It does not just prohibit the court from entering such an order following trial — it prohibits any order for unallocated maintenance.  There is no exception for agreements.

This portion of the proposed legislation is stupid.  It is stupid.  It takes a tool out of the tool box that is the closest thing we have to creating a settlement alternative that benefits both parties at the cost of the government.  Its one of the only times divorce negotiations is not a zero-sum game.  Why on earth would we want to remove this as a possibility when the parties agree to the use of unallocated maintenance?  Because its difficult for financially illiterate attorneys to comprehend?  Well, attorneys, get educated — that’s your job.