Sometimes known as alimony or maintenance, spousal support will be one potential source of income – or expense – for many divorced people.
The goal of spousal support is to provide financial support to the spouse who needs it in order to keep the family on an equal setting; however, there is an underlying duty for each spouse to work towards being independent of each other. (One exception to this would be a very long-term marriage in which the spouses are near or at retirement age, and it is unreasonable to expect the spousal support recipient to be able to re-enter the workforce and become self-supporting. In this case, the judge may order permanent or “open-ended” spousal support.)
No two marriages are the same, and no two divorcing couples have identical circumstances. Spousal support or alimony is based on a number of different factors, and awards can vary widely from place to place – and even from judge to judge. You’ll definitely need to speak with a divorce lawyer if you think you’ll be receiving or paying spousal support. Factors that a judge may consider when awarding spousal support include:
- The recipient’s need;
- The payor’s ability to pay;
- The length of the marriage;
- The age and health of both spouses;
- The standard of living enjoyed by both spouses during the marriage;
- Each spouse’s earning capacity and ability to be (or become) self-supporting;
- The recipient’s nonmonetary contributions to the marriage (such as childcare and homemaking).
From this list, the two most heavily weighted factors are the first two.
If you think you’ll be receiving spousal support, the first step to take is to create an accurate budget detailing your weekly, monthly, and annual expenses and income. Unless you’ve prepared such a budget, you won’t know how much spousal support you need – or, if you’re on the other side of the equation, how much you can afford to pay. For help creating your budget, see “Documenting Your Financial Situation” and use the “Expense Worksheet.”
Aside from determining need and ability to pay, you should understand a few other key issues regarding spousal support. First, you can either negotiate the amount and duration of spousal support with your spouse, or you can go to court and ask the judge to determine it for you. If you’re going to try negotiation before court – which is a smart thing to do – then speak with your divorce lawyer about what a judge would be likely to order in your case, and your financial professional to make sure your budget is accurate and complete so you know exactly how much income you’ll need post-divorce.
In most cases, spousal support will be set up as “modifiable” – meaning that either spouse can ask for the amount to be increased or decreased at some future date due to a substantial change in circumstances for one or both of them. For example: Jack is paying Diane, who currently has a minimum-wage job, $24,000 per year in modifiable spousal support. Three years after the divorce, Diane finds a job that pays her $50,000 per year. Due to the change in Diane’s financial circumstances, John may be able to have the spousal support reduced – or possibly even eliminated, depending on the other factors in their case.
It’s very important to know that unlike child support, spousal support or alimony is typically treated as taxable income to the person receiving it and tax deductible for the person paying it. This fact is so important because you need to know what the actual out-of-pocket cost is to you if you’re going to be the payor, or the net amount that you’ll receive if you’re going to be the recipient. For example, let’s say that Pete is claiming he can’t afford to pay Rose $50,000 per year in spousal support. But has Pete factored in the tax deduction to know how much less than $50,000 it’s really going to cost him? With that knowledge, he might be able to afford it easily. And if Rose is asking for $50,000 in annual spousal support, has she calculated the taxes to know how much of that $50,000 she’ll get to keep? Before making a request, ask your financial professional to factor in the tax information for both of (including itemized deductions, tax filing status, earned income credits, etc.) so you can determine the true cost of spousal support if you’re the payor, and how much you’ll actually keep if you’re the recipient.
One final consideration if you’ll be receiving spousal support or alimony is how to protect it. If you’ll be relying on spousal support to cover your expenses, you must protect it in case your ex-spouse dies or becomes disabled. What if your ex-spouse has a terrible accident just two years after your divorce and will never work again, but you were counting on annual support of $25,000 for the next 8 years? How will you replace that income? Although many divorce agreements require insurance to protect support payments against death, almost none require protection protection against disability. If you consider that the probability of disability occurring during a person’s working years is two to three times greater than the risk of death, this is crucial insurance to obtain! Ask your divorce lawyer or financial professional to recommend an insurance policy to protect your spousal support or alimony against both disability and death of the payor.
To learn more about spousal support, go to: http://www.divorcemag.com/alimony-spousal-support.
