Effective January 1, 2019, alimony laws changed in New Hampshire to the lesser of either reasonable needs of the payee spouse or 30 percent of the difference between the divorcing couple’s gross income. Then Congress came along and changed the Internal Revenue Code to do away with the deduction of alimony on the tax return of the paying spouse.
Now as of July 9 of this year, the 30 percent is reduced to 23 percent under state law.
The percentage reduction was needed to update the alimony formula in light of the 2019 change in the Internal Revenue Code eliminating the tax deduction for alimony payments. This changed the expected after-tax outcomes for payors and payees using the New Hampshire alimony formula.
This corrective alimony legislation would also clarify that the 2019 alimony reforms apply only to divorce and legal separation petitions filed beginning in January of 2019. Although the original bill said that the alimony reforms would apply only to new cases, some lawyers argued to apply it to brought-forward cases as well.
The main reason for limiting the 2019 law to new cases is that property division and alimony are often interactive. For example, a person might have agreed to no alimony in return for more than half of the assets. Reopening the case later to seek alimony would be unfair in such situations.
After reviewing alternate formulas over the range of incomes with the help of divorce financial analysts, the Alimony Working Group concluded that 23 percent of the difference in gross incomes under the new tax law produced similar results to 30 percent of the difference under the old federal tax law.
The new law also provides a window for people with alimony orders effective on or after January 2019, to request modification of the amount of alimony set in their case. The window would be open for any orders amounting to more than 23 percent of the difference in gross incomes. Any requests for modification must be made by July 1, 2022.
This expected change in the alimony formula and its retroactivity should be considered in cases being settled or tried now. Setting up your client for another round of mediation or litigation later in 2021 or 2022 may or may not be in the client’s best interest.
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