Alimony (also known as spousal support or maintenance) requires the higher income earner of a marriage to pay the lower income earner a defined amount of money for a defined period of time.
Unfortunately, there is no defined calculation for alimony. It depends on the information your family law attorney presents and how the judge interprets it.
The Tax Cuts and Jobs Act of 2017 (TCJA) removed taxation from alimony for divorces finalized after December 31, 2018. Alimony is no longer tax deductible for the payor and no longer taxable for the recipient. It is
This change is expected to generate more revenue for the government since the higher income earner will pay all taxes (i.e., they are in a higher tax bracket than the lower income earner). From preliminary 2016 data from the IRS, deductions from alimony payments amounted to over $12 billion.
For divorce settlements prior to December 31, 2018, alimony will continue to be deductible for the payor and taxable for the recipient. The exception would be if you have a modification to your original divorce settlement in 2019 or later and it states the TCJA applies. It is unclear how the IRS will monitor these modifications.
Due to the taxation change, some states may develop a defined calculation for alimony. For example, Colorado implemented a new calculation for alimony that became effective in August 2018.
If your state does not have a defined calculation for alimony, it is important to retain a family law attorney who has experience with judges in your district. Here are some factors a judge may consider when determining the amount of alimony to be paid:
- length of marriage
- age and health of both parties
- standard of living when married and post-divorce
- earning capacity for both parties
- division of marital property
It is up to you to clearly present why or why not alimony is necessary. While your standard of living may decline after a divorce, it may not justify the need for alimony if you are healthy and have earning capacity. It may not be justified if the paying spouse can’t afford it.
Some judges are single parents and may not be empathetic towards a non-earning parent.
Some judges will award short-term alimony to give the lower income earner time to return to school to improve their earning capacity (known as rehabilitative maintenance).
Some judges may award alimony temporarily until Social Security benefits can be claimed (more relevant for gray divorces) .
Some judges may request historical financial information for variable income or a sudden change in lifestyle (e.g., quit job, moved in with a friend or family member, deferred income, etc.).
It’s important to understand the short-term and long-term financial implications of your divorce. Each financial decision impacts other decisions. Work with a Certified Divorce Financial Analyst® (CDFA®) before you begin negotiations on your divorce settlement. These financial experts will develop an analysis to show your financial need in your post-divorce life now and in the future … because life does continue after a divorce.
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ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA®, RICP®, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include developing spending plans, comprehensive financial plans, divorce financial reviews, retirement plans. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me.’”