I have been interested to see the reaction to the new Tax Cuts and Jobs Act (TCJA) by my US counterparts. The new law means that the US tax treatment of maintenance payments will be the same as in the UK –i.e (for those payments made in accordance with a divorce or separation instrument made after 31 December 2018) they will be paid from net income and be tax-free to the recipient.

There has been a great deal of consternation in the US, and concern that it will mean that lower maintenance payments will be made, as there is no longer the incentive of tax deduction for the payer. However, I think that simplifying the system has to be a positive. When I negotiate maintenance payments (assuming both parties are resident here) the maths is at least straight forward. Payments come from net income, and the recipient does not have to worry about paying tax on receipt. It is easy to see the net effect for both parties. Whilst, deducting the payments for tax can be an incentive, it is the bottom line that really matters, and it seems to me that the current US system is just a more complicated version of getting to that bottom line.

Negotiating maintenance is already complex enough: it is a nuanced and fact specific issue: In some cases it is right that there should be finality and certainty on divorce, and each party should be set on the road to financial independence; iIn other cases, however, family decisions made during the marriage have a significant long term impact on one party's career and earning prospects, and the needs arising as a result have to be met on an on-going basis. This is particularly so then those same family decisions mean that the other party is in a position to ensure their financial security with relative ease.

The only complicating tax factor for the maintenance deals we do here is in the event that either party is resident abroad or intends to move. Then, it is essential to obtain overseas tax advice before beginning negotiations. Otherwise the recipient could find that their net receipts are very different to what they had anticipated – the case of Harris v Harris is a recent example, where Mrs Harris' decision to move to Belgium meant that she had to pay tax at 40.09% on her maintenance payments.

It will be interesting to see the extent to which this tax change will impact on divorce outcomes in the US – and indeed here where one party is a US tax payer. I think that making it tax neutral fits neatly with the principles upon which maintenance is calculated – if it is to meet needs, then taxing it seems to defeat that purpose, as the result is just paying more so that the net position is unaffected.

Of course, in the US there are state as well as federal taxes so it won't be as straight forward a system as it is here. I am very fortunate at Withers to have US tax experts just a 'have-you-got-time-for-a quick-question?' away, as tax is certainly an area where expert advice is key.

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