If your divorce decree or separation agreement was executed after December 31, 2018, maintenance (alimony) is not deductible by the spouse who pays it and is not income to the spouse who receives it for federal tax purposes. Older instruments generally keep the earlier rule. Property moved between spouses as part of the divorce is usually not taxed at the time of transfer. This page explains those rules as the IRS states them. It is part of our Montana Divorce Guide, and it is general information, not tax advice.
The Rule for Divorces After 2018
IRS Topic No. 452 puts it this way: the payer spouse cannot deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018, and payments the recipient receives under such an agreement are not included in gross income. IRS Publication 504 says the same.
For anyone divorcing in Montana now, that means maintenance is paid with after-tax dollars and received tax-free at the federal level. The rule applies to temporary orders too. Publication 504 defines a divorce or separation instrument to include a temporary decree and any court order requiring a spouse to make payments for the other spouse's support. See temporary maintenance during divorce.
| Payment or transfer | Payer or transferor | Recipient |
|---|---|---|
| Maintenance, instrument executed after 2018 | Not deductible | Not included in income |
| Maintenance, instrument executed before 2019 and not modified to adopt the new rule | Generally deductible | Generally included in income |
| Child support | Never deductible | Not income |
| Property transferred between spouses, or to a former spouse incident to the divorce | No gain or loss recognized | Not taxable on receipt; takes the transferor's adjusted basis |
Older Decrees and Later Modifications
If your instrument was executed before 2019, the IRS says payments that qualify as alimony are generally deductible by the payer and includible in the recipient's income. That treatment continues after 2018.
A modification can change it. The new rule applies to an instrument "executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification." So when former spouses with an older decree agree to change maintenance, the wording of the new order decides which tax regime applies. That is a point to settle with a tax professional before anything is filed. See modifying or ending maintenance for the Montana standard.
Why the Change Matters in Negotiation
Under the old rule, a payer in a higher bracket could deduct maintenance and the recipient paid tax on it, often at a lower rate. That is gone for new divorces. The number that matters now is the after-tax cost to the payer and the tax-free amount to the recipient.
Montana's maintenance statute has no formula. The court considers, among other things, the requesting spouse's financial resources and the other spouse's ability to meet their own needs while paying (MCA § 40-4-203(2)). Taxes are part of each spouse's real financial picture, so accurate after-tax figures help in a negotiation and in court.
Child Support and Payments That Are Not Alimony
The IRS is direct about child support: it "is never deductible and isn't considered income." If one instrument calls for both maintenance and child support and the payer pays less than the total, the payments apply to child support first.
Topic No. 452 also lists payments that are not alimony for tax purposes, including noncash property settlements, payments to keep up the payer's property, use of the payer's property, and voluntary payments not required by a divorce or separation instrument. For the question of which parent claims a child, see who claims the child on taxes.
Property Transfers: Section 1041 and Basis
Dividing property in a divorce is usually not a taxable event. Under 26 U.S.C. § 1041(a), no gain or loss is recognized on a transfer of property to a spouse, or to a former spouse if the transfer is "incident to the divorce." A transfer is incident to the divorce if it occurs within 1 year after the date the marriage ceases or is related to the cessation of the marriage (§ 1041(c)). The rule does not apply if the spouse receiving the property is a nonresident alien (§ 1041(d)).
The catch is basis. The recipient is treated as receiving a gift and takes the transferor's adjusted basis (§ 1041(b)). Publication 504 notes that this is so whether the basis is less than, equal to, or greater than the property's value at the time of the transfer.
In practice, a brokerage account worth a given amount with a low basis is worth less after tax than the same amount in cash. A fair division looks at what each asset will net, which is a calculation for a CPA. See how property is divided in Montana, who gets the house, and dividing retirement accounts and QDROs, which have their own tax rules.
See a Tax Professional
This page covers the main federal rules. It does not cover Montana's state income tax, filing status for the year of the divorce, dependency claims, retirement account rules, or the sale of a home. Our page on taxes the year you divorce introduces some of those.
A&M Law is a family law firm and does not prepare returns or give tax advice. Before you sign a settlement with maintenance or a significant property transfer, have a CPA or tax attorney run the numbers. It is far easier to adjust a draft agreement than a final decree.
This page explains the law in general, based on the Internal Revenue Code and current IRS guidance (Topic No. 452 and Publication 504). It is not legal or tax advice about your specific case.