This is the ninth post in my “Divorce & Your Money” series.
Spousal support, alimony and maintenance usually mean the same thing, and may be used interchangeably by your attorney or advisers.
Here are the questions I 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 until the children were in school or even left home for college. 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.
What are the Criteria for Receiving Spousal Support and Determining the Amount?
- 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
One rule of thumb is that the length of spousal support is 1/2 the length of the 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?
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 How Much Alimony Will I 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.
Those are the big questions pertaining to alimony or maintenance. But please consider that there are other financial requirements. These include:
- Payments must be made by cash, check or money order. (Payment cannot be made in “services”, like mowing the lawn).
- There must be a written court order or separation agreement.
- Spousal support is generally taxable income to the recipient (the payee) and tax deductible by the payer. However, it is possible to agree in writing that it will not be deductible.
- The divorcing couple may not reside in the same household.
- The payments must end at the death of the recipient.
- The couple may not file a joint tax return.
- No portion of spousal support may be considered child support.
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. I am not an attorney and I do not provide legal advice.
Temporary Spousal Maintenance Guidelines Calculator: http://www.nycourts.gov/divorce/calculator.pdf
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 contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Sara Stanich, CFP, CDFA and not necessarily those of RJFS or Raymond James.
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.