Alimony in general
There are three types of alimony—two that the court can order, and one that is a compromised amount. The three types are called temporary rehabilitative alimony, permanent alimony, and the compromised amount is definite alimony. Some major factors are the length of the marriage, the incomes of the parties, the contributions both financial and otherwise of each party to the marriage, the education of the parties, whether or not the parties are ‘employable’ (how easy could they find a job or a better paying job), and the age and any disability of the parties. The court will consider all relevant factors (and there are a lot) in any alimony case.
Alimony generally automatically terminates upon one of three events: the husband dying, the wife dying, or the remarriage of the receiving spouse. The court or the parties themselves in a separation agreement can state additional terms by which the alimony will terminate, usually upon a specific date. Alimony can sometimes be modified on a showing of extenuating circumstances that come about after the divorce although in some divorce agreements the parties agree that the alimony will be ‘non-modifiable.’
From a tax perspective, alimony is treated as income. Therefore, alimony paid is deducted from the payor’s income (i.e., paid before taxes are deducted) and is included in the receiver’s income. While many individuals in a divorce may seek to avoid any alimony payments, it is important to recognize that alimony payments result in a tax savings equal to the amount of the taxes that would have been paid on the alimony amount. For example, for a high-income earner who pays $50,000 per year in alimony, if the $50,000 would be taxed at a 35% marginal tax rate, then the alimony actually ‘costs’ the payor $32,500 per year, since the IRS, State, and local taxing authority would have received the remaining $17,500 in tax revenue anyway.
Rehabilitative Alimony
Rehabilitative alimony is generally granted for a short period of time, perhaps two, three, or up to about five years. The goal of rehabilitative alimony is to provide some ‘buffer’ time for one spouse to be able to achieve self-support status. This is common for spouses who are unemployed voluntarily (e.g., stay at home mothers) or under-employed (e.g., if one spouse works part time). It is also common in cases where one spouse is in school or intends to return to school to obtain an advanced degree or certification to further their careers. In those cases, the court may order one spouse to pay alimony to support the other spouse while he or she remains in school (until their expected completion date). After a divorce, newly-single parties will have to begin life anew. When the income discrepancy is great, the court may be inclined to award some short term alimony to the spouse earning far less money as she transitions out of the marriage and begins to support herself.
Permanent or Indefinite Alimony
Permanent alimony is long term and indefinite (with the exception of death or either party or remarriage of the party receiving alimony) in the event that the party asking for alimony cannot reasonably become self-supporting because of their age, disability or illness (either physical or mental). Permanent alimony can also be awarded if the standard of living for the parties will be “unconscionably disparate.”
Definite Alimony
While the court can award ‘rehabilitative alimony’ it’s term is rarely for more than five years or so considering the circumstances. However, in some cases where one spouse might have a case for indefinite alimony, the parties might compromise on a period of alimony that is five or more years, but ends upon a certain definite time. A common example of this type of alimony is in a situation where one spouse has tremendous earning capability during his working career, but expects to retire and draw off retirement savings. At the time of retirement, it would be expected that the parties’ incomes would be reduced and, when there is a division of retirement assets, both parties will receive distributions from a pension, retirement fund, or other retirement asset so alimony payments would be unnecessary to ‘level the playing field.’