Alimony 101

alimony 101
Karen Sparks

By Karen Sparks | May 7th, 2019

Emerging from a mindset of shared expenses to one where YOU are now going to be responsible for charting the financial course going forward is a challenging reality. While the process of divorce is deeply affected by emotions and entitlement, the key to successfully negotiating the alimony piece is a commitment to pursuing a grounded and focused conversation that will net the result that you need and deserve.

Let’s take a look at how to develop a blueprint for figuring out all of this.

Alimony Payments In Your Jurisdiction

Before you mention a number, it is important to discover and understand how the statutes in your jurisdiction set the framework for what can actually happen in an alimony discussion. For example, there are some areas that have a set percentage that can be allowed for alimony disbursement and that percentage is not negotiable. Alternatively, there are legal mandates related to the length of the marriage and the amount of time that alimony will be paid under that ratio. Other jurisdictions have case law limiting the requirement of alimony when the payor is at or near retirement age. Finally, there are jurisdictions that do not allow for any formal alimony but will designate funds to be paid for a limited time based on specifically prescribed purposes.

An internet search of family law statutes related to the payment of alimony in your jurisdiction is also recommended. If you are currently working with a family law attorney, Certified Divorce Financial Analyst® or other family law professional these individuals would be additional resources to obtain the required information.

When you have the knowledge of what is actually possible for alimony, you are in a stronger position to advocate for yourself based on verified, supported data.

Alimony Amount

Once you understand the parameters and statutory framework for alimony in your jurisdiction you are now prepared to approach the subject of the appropriate payment amount.

Additionally, it is necessary to factor in the 2017 Tax Reform changes as the payor of alimony can no longer deduct these payments and the recipient no longer has to report these payments as income. Depending on your financial level, this can change the conversation around the amount of alimony in jurisdictions that do not have set statutory parameters on how alimony payments should be disbursed.

So, consider this caveat–negotiate for what you NEED as opposed to what you WANT.

Why?

Your goal is to make sure in post-divorce that you can adequately meet your obligations and other payment commitments with the least amount of difficulty. This means that it is necessary to take the time to put together a comprehensive budget to reflect all income sources (outside of alimony) and all expense categories (including family expenses, camps, taxes, housing, housing overhead, etc.). Once this task is completed, you have an amount that you can calculate on a yearly basis, taking into consideration cost of living, etc. that does not reflect an emotional response but is based on actual circumstances. A Certified Divorce Financial Analyst® has the tools to help you put this information together along with projections and scenarios to reflect future outcomes.

READ MORE: Avoiding the Pitfalls of Divorce Financial Planning

Alimony Payments Duration

The duration of alimony payments may be subject to statutory/case law prescriptions and in some jurisdictions may include a lifetime component. However, there are some common applications that are generally applied in family law matters.

Monthly. The most common method to assign alimony payments is monthly. Once an amount is assigned for this purpose the recipient receives this amount on a monthly basis for a specified amount of time.

Step down. If the recipient of alimony is going to obtain further training or education, the amount of alimony can sometimes be set out in a level type format where it will decrease over an agreed amount of time. This allows the receiving spouse to have income while working on advancement goals and necessary requirements for employment and for the payor to have a benefit of payment decrease over time.

Buyout. If there are sufficient liquid assets in the marital estate, it is possible to consider a buyout of the alimony obligation wherein an amount is calculated that the receiving spouse would receive as a lump sum amount that would satisfy the full alimony obligation for the payor. These calculations are based upon a number of dependencies and it would be advisable to have a Certified Divorce Financial Analyst® review the applicable income information and other data together with statutory directives to determine models for the buyout.

Changes in Alimony Settlements

Of course, even the most informed plans require edits and changes. In the area of alimony, there are jurisdictions which allow for parties to make changes to already established agreements based upon changes in income requirements whether that is the result of job loss, increased expenses etc. In general, the ability to make these changes applies to monthly and step-down alimony models.

Healthcare Coverage

A major concern for spouses receiving alimony who do not currently have wage-earning income with benefits is the cost of obtaining adequate health care services. In general, once a divorce becomes final, a spouse can no longer be carried as a dependent on the employed spouse’s medical plan. Instead, other options often include Cobra coverage (which is usually offered at a substantially higher premium than the family group coverage) and/or trying to find equivalent coverage with other plans. If pre-existing conditions are a reality, how these are handled are subject to changing priorities at the federal national level which provides another layer of uncertainty beyond normal concerns.

Two action items are important in this regard:

  1. While you still have medical, dental or vision coverage under a current family plan or another benefit package, make appointments to update all services such as follow-ups, exams, prescriptions, diagnostics, etc.
  2. Begin investigating other coverage options along with enrollment requirements so that if you are financially able, you can continue another form of health coverage without too much of an interruption in services.

Establishing a strong and accurate foundation to initiate the alimony narrative will place you in a position to advocate for the financial contribution that best suits your new life requirements.

Karen Sparks

Karen Sparks


Karen D. Sparks, CDFA®, J.D. is the principal and owner of Divorce Financial Strategists™. She provides clients with focused divorce analysis and strategies for marital assets.

 
 
 
 
 
 
 
 

©2011-2019 Worthy, Inc. All rights reserved.
Worthy, Inc. operates from 20 W 37 St., 12th Floor, New York, NY 10018