Alimony
The word alimony is derived from the Latin verb alere, which means “to nourish.” The noun form is alimonia, which means nourishment or sustenance. Traditionally, it was a duty of support owed by a husband to a wife in addition to child support.
Historically, divorce was only possible when there was marital misconduct or fault involved. If the fault was the husband’s, the wife was awarded alimony on the theory that the marriage and her support would have continued if the husband had not been at fault. Conversely, if the wife was at fault, she would receive no alimony.
When states began adopting no-fault divorce, alimony changed as well. Rather than alimony being a right, its purpose changed to helping a dependent spouse become self-supporting or live with the same standard of living as she did during the marriage. Fault became one of several factors to be considered in alimony awards, and in some cases fault was not considered at all.
The Equal Protection Clause of the U.S. Constitution and the U.S. Supreme Court both say there can be no gender bias in alimony awards. Men and women are supposed to be treated equally, but women still get more alimony awards than men. However, the change in family roles, such as the advent of stay-at-home dads, working wives, and working couples, has had some effect on alimony awards for men. In working-couple marriages, 28% of women now earn more than their husbands.
How Long Does Alimony Last?
There are basically three types of alimony—temporary alimony, rehabilitative alimony, and permanent alimony.
Temporary Alimony (Pendente Lite)
Pendente lite is Latin for “pending the litigation.” It means a court can order alimony to be paid until the trial. This is usually done to maintain the status quo, so that a spouse who controls all the family income does not get an advantage. Temporary support is for necessary living expenses, legal fees, and expert witness costs for the litigation. The test is one spouse’s need and the other spouse’s ability to pay. This is not the same test that is used for permanent postmarital alimony.
Rehabilitative Alimony
Rehabilitative alimony is for a fixed term—a definite period of time. Its purpose is to help a spouse to obtain a job and become self-supporting.
Permanent Alimony
Permanent alimony does not have a definite end date. For that reason, it is sometimes called indefinite alimony or lifetime alimony. It runs until one party dies or the person receiving alimony remarries. Some states also include cohabitation as a termination event for alimony.
A court might award permanent alimony when rehabilitative alimony won’t enable a spouse to become self-supporting—for example, in the case of a spouse with a disability that limits or prevents work. Sometimes, permanent alimony is granted when one spouse makes a significant amount of more money than the other spouse.
A court may have the authority to award both rehabilitative and permanent alimony to the same person. An alimony award may also be in steps, such as $2,000 a month for two years and $1,000 a month for three years.
How Much Alimony Will I Get (or Have to Pay)?
Alimony is determined by state law and varies widely from state to state. Some states have guidelines on amounts and durations. Others give alimony for marriages of ten years or longer. Still others leave it up to the judge to determine based on various factors, such as duration of the marriage, income-earning ability of the parties, health, age, education, standard of living, and circumstances that ended the marriage.
For an example of the wide variety in state laws governing alimony, in Mississippi judges cannot put an end date on alimony, while in Massachusetts lifetime alimony has been eliminated entirely.
Alimony, like child support, is not dischargeable in bankruptcy. If someone owes back alimony payments, they can be collected by attachment of assets or garnishment of wages. The payor may also be found in contempt of court and be sent to jail until the obligation is paid.
Alimony, unlike child support, is taxable income to the person receiving it and deductible by the person paying it. The parties can reverse this by a written agreement.
It is important to note that you must ask the court to determine postmarital alimony at the time of the divorce trial. If you don’t, you have waived alimony forever and cannot get it later.
A payee can ask the court to enter an Earnings Withholding Order, which requires alimony be deducted from the payor’s paycheck and mailed to the payee by an employer.
Tip If you don’t get alimony at the divorce trial, you cannot go back and ask for it later. So be sure to make it part of your request to the divorce court in your complaint.
Alimony Factors
If you are in one of the states that leave alimony up to the judge’s discretion after consideration of various factors, here are descriptions of some of the factors judges will probably take into consideration:
Age. Young people have more time to restart their career after a divorce and more time to earn money than older people getting divorced. The court is likely to give young people shorter periods of support.
Health. People in good health are able to find work. Poor health might lead to limited ability to earn money or to complete disability. The courts will be more likely to award alimony to spouses who cannot find work through no fault of their own.
Income. The court will look at the income of each party and his or her ability to support themselves on that income. The court may use alimony to adjust disparate incomes so they are not so out of balance.
Earning Ability. The court can consider evidence of the future income earning ability of the parties, such as a wife who has been out of the job market for a while or a military doctor about to enter private practice.
Lifestyle. The court can consider the lifestyle the parties enjoyed during their marriage in determining alimony. If they took expensive vacations, lived in a luxurious house, and drove new automobiles, the court may try to adjust incomes so that both parties will be able to enjoy approximately that lifestyle after the divorce.
Length of the Marriage. The longer the marriage, the more the court will be inclined to grant a longer period of alimony.
Fault. In some states, if fault of the person claiming alimony caused the termination of the marriage, such as in the case of adultery, desertion, or cruelty, alimony can be reduced or even barred.
Tip Many states leave alimony up to the discretion of the judge after considering various factors.
Job Status Issues
Since alimony is used to make a dependent spouse self-supporting, employment or employability is a key issue in many alimony disputes. If you are unemployed, you will want to show the court the efforts you have taken to find employment, such as copies of the letters you have sent looking for work. Unless you are unable to work because of illness or injury, or have a small infant at home, the court will hold it against you if you really don’t want to work. In such a case, the judge can use your income earning ability as your income for child support and alimony determinations.
On the other hand, if you are trying to show that your spouse is unemployed on purpose, either to avoid paying alimony or to get more alimony, you usually do this with a vocational rehabilitation expert who can testify about your spouse’s qualifications and the jobs available in your location.
Changes to Alimony
When the court orders alimony, it always has the power to modify it upon request of one of the parties if circumstances change significantly. A change in circumstances might be an increase or decrease in the income of one or both of the parties.
However, the parties can, if they wish, state in their separation agreement that the alimony they have agreed on cannot be modified by the court. In that case, the court will follow the agreement and not modify alimony even if circumstances change. This can be risky for either party, but some people prefer certainty over uncertainty.
Tip The court can always modify alimony unless you make it nonmodifiable by written agreement.
Cohabitation
As we discussed, remarriage of the person receiving alimony will terminate alimony. So, what if the person receiving alimony just decides to live with someone without marrying them? Some states provide by law that cohabitation terminates or modifies alimony. Some do not.
You can put a provision in your separation agreement that provides for termination of alimony upon marriage or cohabitation. But then you better define cohabitation. Is it living together in a marriage-type relationship with sharing of expenses or is a romantic relationship enough? And how long must the cohabitation continue? How many nights a week?
Tip If you want alimony to end on cohabitation, put it in your agreement and define cohabitation.
Nonmarried Support
Although child support may be awarded to nonmarried parents, there are no such provisions for unmarried persons to receive alimonylike payments, referred to as “palimony.” Palimony is actually a civil contract matter rather than a divorce matter. If you can prove there was an agreement to pay, an unmarried person may sue for breach of contract and collect damages if she wins.
As previously mentioned, if you are paying alimony pursuant to an agreement or court order and you are separated, you can deduct alimony on your taxes. If you are receiving alimony under these conditions, it will be taxable income to you, and you may have to file quarterly estimated tax payments.
The opposite is true for child support and payments for property interests. Child support is nondeductible for the person paying it and nontaxable to the person receiving it. And property transfers in a divorce are tax free. Clever taxpayers may be able to take advantage of this tax treatment in a divorce.
Here’s an example: Mike is a lawyer who makes $165,000 a year. His wife, Jane, is a schoolteacher who makes $24,000 a year. They have three minor children. In lieu of paying child support, Mike can pay more dollars in alimony because he gets a tax deduction for it. And Jane gets to keep more dollars because she is in a lower tax bracket than Mike. In effect, the government is contributing to the family support, and so there is more money available to the family.
Conditions for Deducting Payments as Alimony
The Internal Revenue Code has certain conditions that must be met to make payments deductible as alimony for the payor:
- Payments have to be in cash or cash equivalents. Checks and money orders are treated as cash. IOUs, property, and services are not treated the same as cash. If you pay your spouse’s obligations to third parties, that can qualify as deductible alimony.
- Payments have to be pursuant to a divorce decree or a written separation agreement. It is not unusual for a spouse to move out but continue to pay bills or give money to the other spouse for family expenses without having it in writing. These payments are not deductible as alimony because there is no divorce order or written agreement. And, before you ask: No, you cannot backdate your agreement to cover the last few months that you have been making payments.
- The agreement cannot say the payments are nondeductible. Remember, you can reverse the tax treatment of alimony in your agreement. If you do this, the payments will not be deductible as alimony.
- You and your ex have to be living in separate residences with separate roofs. If you live in the basement and your ex lives upstairs, it’s not alimony.
- Payments stop on the death of the person receiving the payments.
- You don’t file joint tax returns.
If a spouse has to pay $100,000 in a property settlement, you can see that there would be a powerful incentive on the part of the payor to try to make the payment tax deductible by calling it alimony in the agreement. The government has anticipated this. You cannot make it alimony by calling it alimony in your agreement. Even if it is called alimony, it still must meet the conditions above for it to be deductible as alimony. Since the $100,000 payment for a property settlement doesn’t terminate on the death of the recipient, it doesn’t pass the test for deductible alimony.
Tip Alimony is tax deductible for the payor, but only if it meets certain conditions.
Alimony Recapture
The alimony recapture rule is intended to keep taxpayers from disguising tax-free property transfers as deductible alimony. Payments that are too concentrated in the first two years of alimony look like property transfers. If you don’t pass the test for front-loading of alimony, then the IRS can recapture lost taxes by including excess alimony payments in the payor’s income, in effect reversing some of the alimony deduction.
While you can find a calculator online if you put “alimony recapture” in a search engine, what follows is the rather-complicated formula. The first calendar year in which alimony is paid is the first year in the formula.
- Start with the third year that alimony was paid. Add $15,000 to the amount paid and then subtract the alimony paid in the second year.
- Next, take the amount of alimony paid in the second year and subtract the total outcome of step 1.
- Now, take the alimony paid in the third year and add it to the result from step 2. Divide the resulting sum by two.
- Take the result from step 3 and add $15,000. Subtract that number from the alimony paid in the first year.
- Add the result of step 4 to the result of step 1. This is the amount of excess alimony to be added to the income of the payor and subtracted from the income of the payee in the third year.
Note that there is no recapture if the payee has remarried. Excess alimony only occurs in the first two years. It does not exist in the third year or subsequent years. If you want to avoid the calculations, there is a simple safe harbor: There is no excess alimony if payments do not go down by more than $10,000 a year in any of the first three years.
Tip Watch out for alimony recapture if your payments have been front-loaded. Think through how you will pay alimony in the first three years to avoid trouble.
Child Support Disguised as Alimony
Another temptation is to disguise child support as alimony so that you can take the deduction for it. Congress is ahead of you on this one as well. It has devised three tests for what it calls alimony fixed as child support.
The first test is simple. You can’t call it child support. If any payment is said to be for the support of children in your agreement or divorce decree, then it is child support, not alimony. Therefore, you can’t deduct it.
The second test is that the payment can’t change as a result of some event related to one of your children. For example, if you say that the payments will stop when Timmy leaves home, or the payments will reduce when Sally goes to college, the payments will be nondeductible child support. Other examples of child-related events include graduation, reaching a certain age, marriage, death, getting a job, reaching a certain earnings level, or leaving home.
The third test says you cannot change the payments based on an event that can be associated with one of the events in the second rule. IRS Regulations provide two more tests to see if you meet the third test:
- The Birthday Test. If alimony is reduced or terminated within six months of the 18th or 21st birthday of a child (or the local age of majority), then it will be presumed to be child support instead.
- The Two or More Children Test. If you have two or more children, you cannot deduct alimony that will change two or more times within a year before or after they reach a certain age between 18 and 24. The measuring age must be the same for both children.
In the case of Mike and Jane above, Mike passed all three tests: He didn’t call his payments child support; they didn't terminate within six months of the 18th or 21st birthday of a child; and it didn't change two or more times within a year before or after a child reached a certain age between 18 and 24. Therefore, he gets to deduct the entire payment as alimony and the IRS will not recharacterize it as disguised child support.
Tip If changes in payments are tied it to an event or time associated with the children, they may not be deductible as alimony.
Health Insurance
Health insurance can be a major problem in a divorce. If you are covered by your spouse’s group health insurance under a family plan with his employer, you will no longer qualify once you are divorced. The children will still be covered.
You can apply for and obtain continuing coverage under that plan for three years, but you will have to pay the premium that was formerly paid by your spouse’s employer as well as the employee portion, and it will be the premium for an individual. Sometimes, this expense is included in alimony, but once again the expenses of two people living separately are more than when living together.
Life Insurance
Just as life insurance can be collateral for the obligation to pay child support, it can be used to secure alimony payments. Life insurance on the life of the payor would replace any alimony that would have been paid for spousal support if the payor had lived. You can tailor the amount and duration of the life insurance to match the obligation to pay alimony. In an acrimonious divorce, the payor may not want to buy or continue life insurance for an ex-spouse, but it can be a negotiated item in a settlement agreement.
Summary
Alimony is for the support of a spouse in addition to child support. It is not usually a calculated amount and judges have more discretion in setting the amount and duration. In the next few chapters, we will take a look at dividing up various assets acquired during the marriage.