If you are considering divorce or in the process, you may be wondering if spousal maintenance will be part of your financial plan for the future. Spousal support, alimony and maintenance usually mean the same thing, and may be used interchangeably by your attorney or advisers.
Here are the questions we hear most on the topic from divorcing couples:
Why Does Alimony Exist?
Traditionally, and even today in many marriages, one spouse (yes, usually the wife) either does not work outside the home or has intentionally limited their work outside the home to allow time and focus on the majority of household responsibilities, including children (or not). This may be the best choice for the family and is a joint decision made by the couple. It can work very well, but responsibility for the household definitely does limit that spouse’s ability to earn income and build a career.
After divorce, temporary support payments may allow the recipient to become financially independent by changing careers, completing a degree, or starting a business. Permanent support payments may be appropriate for a recipient with little or no recent work history or health issues which prevent adequate employment.
Spousal Support is based on income, not gender. If both persons make similar incomes, there is no need to pay any alimony. The higher-earner could be expected to pay alimony to the lower income earning spouse for some period of time, hopefully to allow time for that person to transition to a higher earning position or to make lifestyle changes to achieve financial independence.
How Much Will Pay Receive (or Pay?)
Here are the criteria for receiving and determining the amount of spousal support:
Need and Ability to Pay
- Do both parties have enough to live on? This can be determined through a realistic review of the budget for both parties.
- Division of property should be discussed (or even decided) before spousal support. Income from investments, a business or rental income may affect the need and/or ability to pay.
Length of Marriage
- A short marriage may mean that no support is granted.
- Lifestyle during the marriage is an important consideration, but be realistic! Two households cost more than one, and both parties should expect some reduction in lifestyle.
- Remember that it is reasonable to expect the financial paths of you and your ex will diverge, especially after a transitional period of support. People get raises, change careers, get remarried, etc. Eventually, one person may be doing “better” than the other.
Age and Health
- Divorce happens even late in life, and permanent maintenance payments may be appropriate if it is unrealistic to expect the recipient to earn sufficient income. At the same time, the payer’s expected date of retirement should be considered as it will likely affect their ability to pay.
When Does It End?
It really depends a bit on your location. Guidelines are set by states; there is no federal rule. One rule of thumb is that the length of spousal support is 1/3 to 1/2 the length of the marriage, and none for very short marriages. A specific end date or time may be negotiated by the couple (or their attorneys) or will be determined by a judge.
Events which usually trigger the end of support payments include: the death of either party, the remarriage of the recipient, or modification of the agreement (which may be appropriate after a significant change in income for either party).
How Much Alimony Will I Pay? (Or Receive?)
A few states (including my state, New York) have guidelines for support while the divorce is pending.
However, even if a temporary award is granted, a more permanent arrangement for the couple’s specific situation must be made according to the criteria above.
What About Taxes?
It used to be that spousal support was taxable income to the payee and a tax deduction for the payor. This created a tax “arbitrage” opportunity to lower the overall income taxes for the family as a whole, because the person receiving support would likely be in a lower tax bracket.
However, the Tax Cuts and Jobs Act (TCJA) enacted by Congress in 2017, eliminated the deduction for alimony payments made for people who get divorced in 2019 and later at the federal level. The states still have the choice of following the old rules or being consistent with the Federal/IRS rules. (As of this writing, my state of New York still allows the deduction for state income tax.)
Those are the big questions pertaining to alimony or maintenance. Each state may have different laws, formulas, or guidelines for support payments pertaining to divorce. Your attorney can provide advice and calculations based on your unique situation.
We are not attorneys and do not provide legal advice. But as Certified Divorce Financial Analysts (CDFAs), we can help determine the financial implications of divorce for your family. Please schedule an Introductions Call if you’d like to discuss your situation.
- Wait, What? Yep, Women Pay Alimony, Too
- NY Courts – Maintenance and Child Support Tools
- The Alimony Deduction Lives on in New York … With a Few New Loopholes
Information and interactive calculators are made available to you as self-help tools for your independent use. The accuracy of this calculator and its applicability to your circumstances is not guaranteed. You should obtain personal advice from qualified professionals.
Please note, changes in tax laws may occur at any time and could have substantial impact upon each person’s situation. You should discuss tax or legal matters with the appropriate professional.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing is accurate or complete. Examples are for illustrative purposes only. Actual results will vary.