For the 38 years that I have practiced divorce law, the word alimony has been the anathema to those divorcing individuals and an obligation, in their view, to be avoided. With the enactment of the Alimony Reform Act of 2011, your basic understanding of what alimony is should be a prerequisite to your understanding the new law.
In simple terms, alimony is cash payments made to a soon-to-be former spouse or former spouse pursuant to a written agreement and/or court order until the death of the recipient. Other triggers can be included in an agreement or court order which would conclude alimony earlier. Typically, what you will read in a divorce order or agreement is that alimony will conclude upon the death of either party or the remarriage of the recipient. Now, under the new alimony statute, there are actually term limits for the payment of alimony for short and mid-term length marriages. Therefore, new triggers will be put in court orders and agreements that correspond to these term limits.
Alimony differs from child support in some very important aspects. Child support is for the use of raising children. Child support is payable to the spouse who has physical custody of the children. Child support is not tax-deductible. It is the right of the child to receive support, not the parent who receives it.
Alimony, on the other hand, is payable for the support of the former spouse. Alimony is taxable to the recipient and deductible by the payor spouse. For those individuals who are upper income, alimony is actually more desirable to pay than child support. For instance, if the payor earns $200,000 per year and is under an obligation to pay $60,000 per year in alimony, the alimony is directly deducted from the payor’s income, so the starting point for taxation is $140,000 and not $200,000. This means that the payor spouse has a significant tax savings.
The recipient spouse, however, is required to pay taxes on the $60,000 alimony that is paid. Compare this scenario to the same payor obligated to pay $60,000 in child support. That person who pays all of the support as child support is taxed for the full $200,000 income notwithstanding the child support obligation. I guess the bottom line is that sometimes, alimony does not have to be the anathema people dread, but a tool that we can utilize to maximize cash flow to both households.
Another difference between child support and alimony is when child support ends. Child support ends upon the emancipation of the minor child. Emancipation can be age 18 upon graduation from high school. The period of child support can be extended through college if the child is a full-time student. If that is the case, emancipation occurs upon the child’s graduation from college or the child’s turning age 23, whichever event comes first.
There are special IRS rules that must be strictly followed for the payments to be deductible as alimony. If these rules are not followed, the IRS could redetermine payments that you deducted as alimony and call the payments child support. That would be a disastrous result, causing the deducted amount to be thrown back into your taxable income category for that year, plus interest, plus penalties. The bottom line is, do not attempt to draft your own agreement. The money you spend for an attorney who specializes in divorce litigation and its tax implications will ensure that you are protected and hopefully will not have to revisit these issues in court a second time.
This has been a simplistic overview of what alimony is and what it has become in Massachusetts. This is the baseline of understanding that you must have before you can contemplate the changes introduced by the Alimony Reform Act of 2011. For those of us who do this work for a living, the new law will provide us with new ways to plan the financial features of your divorce and mitigate against the financial devastation that can follow divorce.