A New Tax Law May Spur More Divorces
A new tax law could spur more couples to divorce this year. Family law attorneys are encouraging couples that are considering divorce to do it in 2018 before a deduction for alimony payments gets wiped out next year under the Tax Cuts and Jobs Act.
A New Tax Law May Spur More Divorces
The deduction will substantially reduce the cost of alimony payments. For example, those in the highest income-tax bracket will find that for every dollar they pay to support a former spouse it will actually cost them a little more than 60 cents.
Divorce lawyers are predicting the tax law will cause more arguments between divorcing spouses.
Alimony has been deductible since it was added to the tax code in 1942. Lawmakers at the time felt that it was unfair to tax people on the alimony they paid when the money was not available for them to spend.
The deduction is a big deal to splitting couples because if someone who earns, say, $250,000 agrees to pay $4,000 per month, it really costs the person paying alimony about $3,000 after taking the deduction into account.
The tax law change will disproportionately hurt women who tend to earn less and are thus more likely to be on the receiving end of alimony payments.
What is Alimony / Spousal Support?
Alimony, also known as “spousal support,” is one of the last aspects of a divorce to be decided, often falling behind child support and custody and marital property division, but it is just as important.
Alimony, often called “spousal support” is when one spouse pays the other in order to help that spouse maintain the same financial standing as was experienced during the marriage. A court will require the higher earning spouse to assist the lower in maintaining that standard of lifestyle that was achieved during the marriage.
Awarding Spousal Support
In California a judge can award temporary (“pendente lite”) support either during the divorce proceedings, or when the divorce is declared final. Typically these payments are made from one spouse to the other in a specified amount for a predetermined period of time. But support can also be paid in a single lump-sum payment. In collaborative process divorce agreements, spouses often come to agreement on the terms and conditions of support payments. As long as this agreement meets legal requirements, a court will uphold an agreement. This is the case even if the agreement provides for a complete waiver of support to the lower-earning spouse.
Duration of Spousal Support
In California, the duration of spousal support agreements are often tied to the length of the marriage. A general rule of thumb is that for a marriage of less than 10 years, a court will not order support payments be made for longer than half the length of the marriage. But if a marriage has lasted 10 years or longer, a court typically will not set a definite termination date for support. Both spouses are able to request modifications to the spousal support agreement indefinitely, unless a termination date has specifically been agreed, or if the court expressly terminates the support at a later hearing.
Awarding Permanent Support
Sometimes support is labeled “permanent” support, but the actual awarding of permanent support lasting for the remainder of a lifetime is increasingly rare, even for marriages that last over 10 years. Family law courts in California tend to require a spouse seeking support to make an effort to become self-supporting. A spouse that makes claims that they are unable to work, or unable to become fully employed, is required to support the claim with evidence. Often times this means having a vocational evaluation. And for long term support orders, the support often gradually reduces over time by a nominal amount. Permanent support is usually only awarded to spouses that are unable to become self-supporting due to age or disability.
Calculation of Spousal Support
California law rules that the purpose of awarding temporary spousal support is for preserving the financial status quo, or “standard of living during the marriage” to the greatest extent possible. After a court evaluates and considers the needs of the spouse requesting the support, as well as the ability of the other spouses ability to pay, it can order the temporary spousal support in any amount. Typically, a court will use a common formula for calculating temporary support. One example of this formula is the Santa Clara County formula. This formula comes up with a figure through subtracting 50% of the lower-earner’s net income from 40% of the higher earner’s, and then makes adjustments for tax consequences and child support payments. The California Department of Child Support provides a support calculator for parents of dependent children looking to get a rough estimate of what temporary spousal support payments might look like along with child support payments. A family law attorney will also be able to provide you with a rough idea of what your payments will look like.
Standard of Living
Spousal support’s main purpose is to assist a supported spouse in maintaining a standard of living that was close to that which was attained during the marriage. But the goal is for the spouse receiving the payments to eventually become self-supporting to the greatest extent possible. A court will take the following into account:
- marketable skills of the supported spouse,
- job market for those skills,
- any time or expense the supported spouse will need to acquire education or training for employment or enhanced employability, and
- the extent to which periods of unemployment (due to domestic duties) during the marriage have impaired the supported spouse’s present or future earning capacity.
The court will also consider any other factors, including:
- extent to which the supported spouse contributed to the other spouse’s attainment of education, training, professional licensing or career advancement (this can also mean the extent to which the supported spouse provided and maintained home life while the other spouse was advancing his or her career)
- ability of the supporting spouse to pay support. A court will take into account earning capacity, earned and unearned income, assets, and standard of living,
- needs of each party based on what the marital standard of living was,
- each spouse’s obligations and assets, including separate property,
- duration of the marriage,
- ability of a spouse who is also a custodial parent to engage in employment without interfering with the interests of dependent children,
- each spouse’s age and health,
- documented history of domestic violence by either spouse*,
- immediate and specific tax consequences to each spouse (often times tax agreements are figured out during the awarding of spousal support and child support agreements),
- balance of the hardships to each spouse, and
- the goal that the supported spouse will be self-supporting within a reasonable period of time. This follows a general rule of thumb presumed to be one-half the length of a marriage (unless the marriage was longer than 10 years).
*California courts do not ordinarily consider conduct when making spousal support determinations. But often times, a court will not award support to a spouse that has a proven history of violence toward the other spouse.
Modification or Termination of Spousal Support
Either spouse can request modification or termination of periodic payments due to a material change in circumstances, unless it has been specified in the spousal support agreement. Absent a written agreement stating otherwise, spousal support terminates on the death of either spouse, or on the remarriage of the recipient.
Cohabitation is an arrangement where two people who are not married live together in an emotionally and/or sexually intimate relationship on a long-term or permanent basis. Typically, this term refers to unmarried couples who live together without formally registering their relation as a marriage. This type of arrangement can affect a spousal support agreement, as it is often deemed that a person living with a new partner has a reduced need for support.
Depending on your state:
• Your spousal support can be reduced or terminated upon cohabitation only if the cohabitation significantly decreases a recipient’s need for support.
• Your spousal support will be terminated regardless of whether the recipient’s economic need is diminished by cohabiting.
• Your spousal support will not be affected should the recipient of the support begin living with someone else.
You’ll want to work with a family law attorney in your state to ensure you understand the rules about cohabitation and spousal support payments.
Periodic spousal support payments are typically taxable for the recipient and tax-deductible by the payer. During a divorce agreement couples often create their own settlement agreements to take advantage of this situation. Payments are structured to create the best possible tax scenario for both spouses. If there are children involved in the divorce, child support payments and their tax exemptions are also considered to ensure that both spouses receive the best tax benefits possible. There are usually no tax consequences for single lump-sum support payments.
Spousal Support Help
Working with a family law attorney can help you understand the process of awarding and receiving spousal support. Many of the laws are specific to the state you will be divorcing in, so it’s important you work with a lawyer that is knowledgeable about your state’s laws.
A Family Law Attorney
But when it comes to the actual legal process of a divorce, you’ll want to work with a skilled family law attorney There are a number of things that need to be considered during a divorce: child support, spousal support, marital property division, and other things. Working with a skilled attorney can help ensure you get a fair case. For advice on divorce, child custody determinations, setting up a co-parenting agreement, dividing marital property, and spousal support you need the expert law firm of Khalaf Law Group. Schedule a consultation today.
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