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 specified period of time.
It is NOT child support, which is a separate calculation.
In most states, there is no defined calculation for alimony.
It depends on the information your family law attorney presents and how the judge interprets the need for alimony.
However, California, Colorado, Illinois, New York, and Pennsylvania have some type of formula or guideline to calculate alimony.
The Tax Cuts and Jobs Act of 2017 (TCJA) changed the federal taxation of alimony for divorces finalized after December 31, 2018.
And with the passing of the One Big Beautiful Bill Act (OBBBA), this change continues.
Alimony was tax-deductible for the payor and taxable for the recipient.
This tax incentive took away the sting from the higher-income earner paying alimony.
The TCJA (and continuation with the OBBBA) shifted taxation to the higher-income earner.
The higher-income earner no longer receives a deduction for paying alimony. Instead, they are responsible for the federal taxes.
And the alimony recipient does not pay taxes on the money.
This change generated more revenue for the federal government (since the higher income earner is in a higher tax bracket than the lower income earner).
At one point, it was estimated the federal government would collect an additional $6.9 billion over ten years.
Unfortunately, Google does not have a current calculation of how much has been collected to date.
It may be due to some states continuing to allow alimony deductions.
And some would say that taking away the tax deduction means most high-earning individuals are less likely to agree to pay alimony.
For divorce settlements before December 31, 2018, alimony continues to be deductible for the payor and taxable for the recipient.
The exception would be if you had a modification to your original divorce settlement in 2019 or later, and if it states the TCJA applies.
Consult with your tax advisor to understand how alimony will be taxed before signing your divorce decree.
If your state does not have a defined calculation for alimony, it’s essential 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:
- 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.
Also, 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 will award short-term alimony to give the lower-income earner time to improve their earning capacity. This type of alimony is known as rehabilitative maintenance.
For gray divorces (when both parties are over age 50), alimony may be temporarily awarded until Social Security benefits begin.
Historical financial information may be requested for variable income or a sudden lifestyle change (e.g., quit job, moved in with a friend or family member, deferred income, etc.).
It’s essential 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 needs in your post-divorce life now and in the future … because life does continue after a divorce.
(Update to original post from February 19, 2019)
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA®, RICP®, is a Managing Director at 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 comprehensive financial plans, divorce financial reviews, and 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.’”