Divorce is a huge life change and is often financially difficult for both parties. Even if the two spouses split their assets and debt equally, one may have less income than the other and need help reestablishing a standard of living similar to that enjoyed during marriage. This is where alimony comes in.
Alimony, also known as maintenance or spousal support, is a court-ordered payment from a former spouse to a current one. It is designed to address the economic disparity between spouses following a divorce. There are many factors that go into the decision of whether or how much alimony is awarded and for how long it will be paid. A judge will evaluate the specific details of a case and make a determination based on the needs of the individual party, the length of the marriage, each spouse’s current earnings and earning potential, contributions to the marriage (including non-monetary ones like homemaking and childrearing), and more.
In general, alimony payments are taxed in the same way that regular income is. This is to avoid shifting income from a high tax bracket to a lower one. There are several different types of alimony, and it is important to discuss these options with a divorce attorney so that you understand the process and your unique situation.
Temporary alimony — also called bridge-the-gap alimony or rehabilitative alimony — is usually paid for a limited amount of time to allow the recipient to obtain employment and get back on their feet. During this period of time, the judge may also encourage the recipient to take classes or training programs to further their skillset and become more marketable as an employee.
Reimbursement alimony — similar to temporary alimony, this type of spousal support is meant to reimburse the paying spouse for expenses incurred by supporting their partner while they were working toward a degree or trade. Generally, the duration of this type of alimony is short-term and may be repaid upon the death or remarriage of the receiving party.
A permanent alimony order may be given in rare cases, but this is typically only for those who have been married for a long time or who have experienced significant financial hardship after the divorce. Permanent alimony is usually accompanied by a lump sum payment of assets, which the requesting spouse can choose to either spend or invest. Alimony is also modifiable, which means that it can be changed or terminated once a party experiences a change in circumstances. This can include job loss, the death of a spouse or co-respondent, or the remarriage of the receiving spouse.
In the midst of a divorce, it is easy to become overwhelmed and take hasty decisions. It is important to build a team of professionals that can support you through the process, including a family law attorney, a CDFA and a CPA. It is also a good idea to have only bank accounts and credit cards in your own name until after the divorce is finalized.
