What Is Alimony, And How Can It Impact Your Finances?
Sarah Sharkey7-minute read
September 21, 2020
Divorce marks a major change in your personal life. Not only will it create some changes in your lifestyle, but also your personal finances. Through the division of your assets and the potential for alimony, divorce can have a dramatic impact on the finances in any household.
But how will it factor into your divorce? Find out more about how alimony can affect your finances.
What Is Alimony?
Alimony is financial support that a spouse pays their former spouse to replace lost income due to the divorce. In some cases, alimony may be referred to as spousal support or maintenance.
The purpose of these alimony payments is to help a financially dependent spouse that has forgone income opportunities to bear the greater burden of domestic responsibilities. The hope is that the alimony will create a more fair economic impact on both people leaving the marriage. That way one member of the marriage will not be left without an income to support their standard of living.
Although alimony is not appropriate in every situation, it can help one member of the marriage have the time to get back on their feet. After all, it takes time to develop new skills and build a career to support themselves at the level they are accustomed to.
When you’re in the midst of a divorce, it’s important to consult counsel regarding any alimony decisions. Everyone has a unique situation that will affect the amount of alimony, if it is necessary at all. With that, here are some common questions about alimony that can help you understand the process.
Who Decides How Much Alimony Should Be Paid?
In order for a divorce to be finalized, the financial obligations of both spouses must be documented. In the past, alimony was designed to help maintain the lifestyle of an ex-spouse. The receiving ex-spouse would generally be entitled to regular payments on a long-term basis to maintain their lifestyle.
However, the practice of alimony has changed considerably since its origins. In modern divorce cases, alimony is usually administered as a lump sum payment or a regular payment over a short period of time. Unlike in the past, these regular payments are not meant to completely support the former spouse. Instead, the funds act as a temporary measure to supplement the income of the receiving ex-spouse while they rebuild their career. It’s assumed that the receiving ex-spouse will take action to build their resume and return to the workforce as quickly as possible.
It’s important to note that alimony can be an expensive proposition. With that, it’s critical for the former spouses to determine a fair and equitable number for a lump sum or monthly payment. The most convenient scenario would involve a pre-nuptial agreement that clearly outlines the terms of a divorce settlement, including the alimony component.
Without a prenuptial agreement to guide the decision, things can become more complicated. In most cases, it is more affordable to determine what is fair between the two parties on the advice of counsel. However, if an agreement cannot be reached, then a judge may need to step in to order the appropriate amount of alimony. When the situation elevates to a court order, the judge will decide the exact amount of alimony to be paid and the term of the payments which may be required until a future event such as the remarriage of the receiving spouse or the retirement of the breadwinner. With the involvement of a judge, you should expect an expensive trial on top of the alimony decision.
How Does A Judge Decide How Much Alimony To Award?
If a judge is required to determine the amount of alimony, they will be guided by the state laws that govern your case. In family law, the amount of alimony can be affected by a variety of factors including:
- The length of the marriage.
- The standard of living during the marriage.
- The income of the breadwinner and their ability to support alimony payments.
- The period of time a receiving spouse may need to rebuild their career through education or training to support their lifestyle without alimony payments.
- The reasons for divorce and the conduct of both spouses during the marriage.
- The age, physical condition, emotional state, and financial condition of the former spouses.
As you can see, the factors that could affect alimony are numerous. In each individual situation, you should expect unique factors to come into play. If you’re in doubt of the factors that might affect your specific situation, then consult the advice of counsel to find out more.
What If I Have A Pre- Or Post-Nuptial Agreement?
If you had a pre- or post-nuptial agreement, then divorce and alimony process will likely run more smoothly. The purpose of a pre- or post-nuptial agreement is to help avoid a messy divorce full of animosity. Instead, the document should outline the expectations for alimony and the division of the marital assets.
With the help of a competent lawyer, a pre- or post-nuptial agreement should save you time and hassle when determining the appropriate amount of alimony, if it is necessary at all.
How Does Alimony Differ From Child Support?
If you have children from this marriage, then the divorce proceedings can become more complicated. In addition to alimony, you’ll need to consider child support. Unlike alimony, child support is a financial obligation that will not be eliminated until the children have reached adulthood.
In contrast, you should expect any monthly alimony payments to cease when the former spouse is able to support themselves. That could mean they find a job with an adequate income or they remarry. Whatever the case may be, when your former spouse is able to fund the standard of living that was accepted during the marriage, monthly payments will cease.
What If My Ex-Spouse Declares Bankruptcy?
Bankruptcy can be a way to discharge your debts. However, there are some debts and financial obligations that cannot be wiped away through bankruptcy. A few of those financial obligations include child support, taxes, student loan debt and alimony.
Even with a declaration of bankruptcy, your former spouse cannot shirk the responsibilities of alimony that was agreed to at the time your divorce was finalized.
What If My Ex-Spouse Doesn’t Pay Alimony Or Child Support?
If your former spouse is no longer making alimony payments, then the first step is to find out why. It’s possible that their financial situation has changed due to a job loss or illness. In that case, you may want to consider working together with a lawyer to create an agreement that suspends alimony payments temporarily. The goal would be to return to the original agreement once your former spouse is back on their feet.
If that doesn’t work, then you have the option to pursue court enforcement of the alimony orders. To start the process, you’ll need to file a motion to the court and request that the judge order timely alimony payments. Luckily, the courts have several options to pursue to enforce alimony payments. The court may choose to hold your ex-spouse in contempt of court or order the confiscation of the ex-spouse’s property to fund the alimony expenses.
When court involvement is necessary, make sure to consult a family law lawyer on the best path forward.
What If I Live In A Community Property State?
If you live in a community property state, then your options for alimony are relatively limited. At the finalization of your divorce, both parties will leave the marriage with an equal share of the arital property. With that, both former spouses will be in an identical financial situation. Since the assets have been divided equitably, the need for alimony is less vital in most cases.
What Are The Laws Regarding Alimony?
The rules surrounding the award of alimony are based on the family laws in the state where your marriage is being dissolved. Every state has different rules regarding the decision of alimony. Plus, every marriage has unique factors that will come into play. With that, it’s impossible to provide an accurate answer to all alimony questions without knowing more about the situation, but we’ll explain some of the trends from around the United States.
State Alimony Reform
Around the country, several states are considering making changes to the alimony laws that govern divorce. In many cases, these reforms are centered around enacting limits on the time period for alimony payments and restricting the amount of judicial discretion involved in this decision.
As these laws are changing quickly, make sure to consult an attorney in your state for more information. A local family law professional can walk you through the changes and how they may affect your specific situation.
2017 Tax Reform
Since the state laws govern the rules of divorce, there are no federal laws regarding this dissolution of a marriage. However, federal tax laws can have a large effect on the former spouses’ financial situation.
In the past, federal tax laws required the receiving former spouse to report the alimony payments as income. It also allowed the paying spouse to deduct the payments from their taxes. However, the 2017 tax reform changed the traditional options in a major way for divorces that are finalized after December 31, 2018.
With the new legislation, the receiving spouse will no longer need to report the alimony payments as taxable income. Additionally, the paying spouse will not be allowed to deduct the alimony payments. That can change the impacts of alimony on the finances of both parties. For the paying spouse, it can be a damaging blow to their financial picture. But for the receiving spouse, it can be a boon to their ability to spend more without worrying about the tax costs on the alimony.
Overall, the 2017 tax reforms made a major impact on the finance of anyone paying or receiving alimony. However, it is not unlikely that the tax code will change again in the future. With that, it’s important to keep an eye on the changes and consult a lawyer when you have questions about your specific situation.
Alimony Allows Ex-Spouses To Move Forward
In the end, alimony is a means to a new life. For the paying spouse, it allows them to move forward knowing that their former spouse is taken care of. For the receiving spouse, it gives them some breathing room to get back on their feet and rebuild their income-earning potential. In any case, it will allow both parties to move forward from the divorce on even footing.
Although the process of a divorce can create a messy financial situation, it’s nothing that cannot be improved over time. Luckily, there is a multitude of free resources available on Rocket HQSM to help you learn more about your personal finances. Whether you need to rebuild your credit score or rethink retirement, we have the information you need. Take control of your personal finances today and move forward confidently.
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