Mediation Blog » Alimony

More Alimony Considerations

admin — Fri, 07 Aug 2009 12:00:52 +0000

Someone in the 28% federal tax bracket, every $100 in alimony paid “costs” only $72 because of the tax savings. If the recipient is in the 15% tax bracket, each $100 received means only $85 is truly realized because of the taxes owed. As you can see, there’s a gap of $13 which is the IRS’s way of helping divorcing couples make ends meet. By utilizing alimony effectively, the couple saves $13 in taxes for every $100. Many state tax laws also provide for alimony deductions on top of the federal deductions. If your and your spouse’s incomes are unequal alimony may help you both save money, so explore the tax ramifications of an alimony order, both individually and as a couple. Alimony can help keep money in your collective pockets rather than in the hands of the IRS. As much as spouses dislike giving alimony to each other, giving it to the IRS is even less popular!

If you have children, and paying alimony in addition to child support is a possibility, the IRS has another vehicle by which you may take advantage of tax provisions called “Unallocated Alimony and Support,” which is a special combination of alimony and child support — all of which is deductible by the paying spouse and taxable as income to the receiving spouse. If your incomes are very disparate; for example, if one of you stays home with the children and does not earn an income, then this option may make most sense for you.

Courts have also modernized alimony in creating “rehabilitative alimony” or limited term alimony. Rather than have alimony continue for the rest of one’s life, as was typical 20 years ago, courts nowadays are considering orders which last for a specific period of time and then terminate. For example, in the case of a woman who has taken time off from her career as a teacher to raise 2 children, now ages 3 and 5, the court might award alimony for four years. During that 4 year time period, the woman has an opportunity to renew her teaching license, look for a job, and establish the children in school. By the time the 4 years pass, she should be in a much better position to support herself, without further need for alimony. Without a reasonable reprieve (in this example, 4 years), she may be unable to find a job immediately because her teaching license or education is out of date, she might be unable to find reasonably priced daycare for the children, and the children would be forced to adapt to a sudden change of living circumstances. Even a few years of modest alimony helps this situation immensely.

On the other hand, there are also traditional cases in which women who have made their lives as housewives find themselves 30 years later without a pension, 401K, or even a job. Many of these women married in college, or before college, and never finished their education. Some have never worked outside of the home, and find themselves for the first time without financial support. Because of their family work and skills, their husbands were able to further their careers without having to worry about keeping house or daily arrangements for the children. At age 55, finding a first job is extremely difficult. Alimony in this type of a scenario is more likely to be ordered for an indefinite period. For some terrific resources on divorce and money, see http://financialplan.about.com/od/divorceandmoney/Divorce_and_Money.htm. Also see the Peace Talks website’s financial information at http://www.peace-talks.com/finformation.php.

Excerpted from Your Divorce Advisor: A Lawyer and a Psychologist Guide You Through the Legal and Emotional Landscape of Divorce (Simon & Schuster/Fireside 2001). For more information: http://www.yourdivorceadvisor.com/.

For more information contact Peace Talks www.peace-talks.com

A Few Other Considerations for Alimony

admin — Tue, 04 Aug 2009 12:00:44 +0000

For most divorcing spouses in states which recognize alimony awards, alimony is a hot emotional issue. In a typical scenario, the husband pays the wife alimony. The longer the marriage, the more likely alimony will be awarded. For the husband, it is difficult to stomach paying alimony when you feel that you earned most of the money anyway. While you may feel that she never did much to help you at the office or with the children, she feels that she was your “right arm”. As the wife, you may feel that you deserve all that he is worth and could be worth someday, since you supported the family during his education, early career, or even while he amassed his profits. You feel he couldn’t have reached his current status without you, while he insists that you undermined him at every turn and did precious little to further his achievements.

Anyone who is required to pay alimony after his or her spouse decided unilaterally that he/she wanted a divorce tends to feel doubly hurt by the system. It is painful to pay someone a substantial part of your income while you are in the throes of divorce and related conflicts, and you’d prefer to spend your money on your children, new partner, or yourself. Almost all partners feel that they are the generous spouse, and their partner is being unreasonable during the divorce process. Therefore, the subject of alimony adds salt in wounds that are already searing. It helps to remember during this time that alimony is a potentially versatile and cost-effective way to help settle your case. Often clients say, “I don’t want to pay a dime of alimony!” only to realize later that the “dime of alimony” is actually the cheapest, most sensible alternative. It is one method of equalizing assets over time; it is not the only way, and if it can be thought about calmly and with creativity it can be a useful tool for a successful divorce. For more divorce financial information, see http://www.peace-talks.com/finformation.php.

For example, many people do not realize is that, for tax purposes, alimony is deductible for the person who pays the alimony, and included in income for the person who receives alimony. You must consider the tax ramifications of an alimony order before deciding whether it makes sense for you. An alimony order can save a couple a great deal of money. In other cases, what you hope to gain, given the tax ramifications, is not worth the fight to get it. For some terrific information on divorce financial planning, see

http://www.divorcesource.com/info/financialplanning/financialplanning.shtml.

For more information contact Peace Talks www.peace-talks.com

Alimony

admin — Thu, 30 Jul 2009 12:00:28 +0000

Alimony, or spousal maintenance as it’s known in some states, is a legal mechanism by which the court acknowledges that two people make up a marriage partnership, and that the earning power of the two people is rarely equal. Sometimes one of those people sacrificed a career, education, or job track in order to fulfill an unpaid role in that partnership. In some cases, an injury or illness contributed to the lesser earning capacity of one of the two partners.

Alimony is not available in every state, with Texas being the forerunner in abolishing alimony. All states reserve the right to make asset divisions based (at least in part) on the earning capacity and future prospects of the spouses. Even if a state doesn’t allow alimony, it may allow other provisions in order to even out the spouses’ financial positions, i.e. no alimony but a larger share of the equity in the house or cash savings. For a good article highlighting frequently asked questions about alimony, see http://www.divorcesupport.com/divorce/Spousal-Support-1423.html.

Both men and women are entitled to alimony in those states which permit alimony awards. Alimony awards are not gender based, but rather, follow broad categories:

age
health, both mental and physical
education
income
future prospects for income and employment
separate property which may be used for support
the desirability of a parent not working for a length of time (e.g., when children are young)
length of the marriage
reasons for the breakdown of the marriage
contributions to the household, both monetary and non-monetary

Alimony is considered to be an income substitute. You need not have children to be entitled to alimony. It is determined based on both spouses’ incomes, the factors listed above, and a determination of the relative importance of each of the factors for each case. It’s therefore impossible to predict how much alimony may be awarded in a given case. Some jurisdictions have a rule of thumb, and experienced lawyers can give you an estimate of the amount you might receive. But unlike child support, which is determined by law, alimony is completely negotiable. Alimony typically ends upon the death of either the payor or the recipient, but all other details are subject to your own design. Some (mix and match) provisions which can be included:

alimony terminates upon the remarriage of the recipient
alimony terminates upon the cohabitation of the recipient with another adult under circumstances which are tantamount to remarriage, but without the ceremony
alimony terminates after a specific number of months or years
alimony is for a decreasing amount each year (subject to some tax rules), i.e., $15,000 the first year, $10,000 the second year, $5,000 the third year, and terminates after year three
alimony is not awarded at the time of the divorce but is an issue kept open for modification later if circumstances change
alimony is modifiable in the event of a substantial change in circumstances, or modifiable only under certain, pre-defined circumstances, such as a physical disability
alimony is not modifiable by either party for any reason
alimony is not modifiable unless either party’s income changes by a certain amount or percentage; e.g., to encourage a non-working spouse to begin working, alimony might be modifiable only if that spouse’s gross income exceeds $20,000 a year

Alimony thus can be tailored to fit many situations. In some cases, it may never terminate; in others, triggering events can be specified which will mark a termination. Think about what you want to accomplish through alimony, and then negotiate to tailor your plan to fit those needs. For a host of information on spousal alimony you may find helpful, see http://www.womansdivorce.com/spousal-alimony.html.

For more information contact Peace Talks www.peace-talks.com