Welcome to the second installment of “During the Divorce Process.” Part 1 of this sub-series discussed the ins and outs of asset and debt division and provided a real-world example of the importance of running financial analysis to make sure an asset division agreement is actually viable for both parties in a way that will set them up for long term financial stability. Much like the last installment, I intended this post to include multiple topics, but once I got to writing about spousal support, it became abundantly clear that this would be the only topic of this month’s post to avoid me writing a 10 page blog. Thus, read on to learn about what spousal support is and what contributes to the amount and duration of spousal support payments.
Spousal support, also known as alimony or maintenance, is a divorce term that most of us have heard of, but what is it exactly? At its core, spousal support payments are typically viewed as payments from one party to another as a result of having been married. One misconception I see about spousal support is that this type of support is always permanent to the lower income or non-working spouse, whereas we tend to understand that child support is temporary. While this may be true in some cases, it has become more common for spousal support in modern day divorces to be awarded on a temporary basis, or sometimes not at all. As previously touched on in Part 1, spousal support plays an extremely important role in the divorce agreement, especially if the dynamic of the family was for one party to take a step back from their career to manage the household and raise the children. This individual could have been out of the workforce for decades, thus making it very difficult for them to reenter the workforce post-divorce to earn a salary that can support their needs and lifestyle they had become accustomed to.
The question of whether spousal support will be awarded to a party and in what amount comes down to a few factors. As mentioned above, need is a very important consideration when assessing spousal support awards. If both spouses have similar income earning potential, or if the division of assets makes both parties self-sufficient in the eyes of the court, there may be no spousal support awarded. However, if one spouse, even after the division of property, is deemed to not have enough income and earning ability to live off of, spousal support is more likely to be awarded, especially if there are children involved. You may be wondering, “Wouldn’t that consideration be under the umbrella of child support?” Long story, short, not necessarily. If the parent would not be able to provide themselves and their child or children shelter, food, utilities, etc., that alone is a strong case for spousal support.
The other side of the coin when talking about the need for spousal support is the ability for the other party, the payor, to afford to pay spousal support and still support their own lifestyle. The goal here is not to pay the non-working or lower income spouse so much that the payor then develops cash flow issues, but for each party to be able to live comfortably and be financially secure after the divorce is finalized. It is extremely important that the possibilities of the payor losing their job due to disability or passing away are accounted for when creating the verbiage in the divorce decree surrounding spousal support. Disability insurance and life insurance are two ways to mitigate the risk of the payor defaulting on alimony payments due to loss of income as a result of disability or death.
Disability insurance offers protection for the payee in the event of the payor losing their stream of income due to disability. While there are different types of disability insurance, the gist here is that the income lost due to disability and the payor not being able to work, or not being able to earn as much as they could prior to being disabled because they cannot do the same type of work anymore, will be replaced by the monthly benefits of the insurance. Depending on how long spousal support is supposed to be paid, it is worth looking into both short term and long term disability policies. The payor may have employer provided benefits that include some sort of disability insurance, but it is important to run an analysis to make sure that the benefit would be enough for their own needs plus the alimony payments.
The payor taking out a life insurance policy is a great way to protect the payee in the event that the payor passes away during the years that alimony is supposed to be paid to them. Best practice is for the payee to own the policy or be the irrevocable beneficiary on the policy. For example, what happens if the payor decides they no longer want to pay the premiums on the policy or they change the beneficiary to be their new boyfriend or girlfriend? The payee would most likely have no idea this lapse in policy or beneficiary change has even occurred until it is too late. Another good rule of thumb here is to make sure that the life insurance policy is taken out prior to the divorce being finalized in case there is an issue with the payor during underwriting. For instance, maybe the payor’s health makes them uninsurable. This would mean life insurance is no longer a viable option to protect the payee.
One factor that gets considered when calculating alimony, and the duration of said alimony, that I mentioned in Part 1 is the length of the marriage. It is a stronger case for spousal support to be awarded if you were married for 30 years and grew accustomed to the lifestyle that comes with a $500,000 income level vs if you were married for one year and grew accustomed to that same lifestyle. Furthermore, one basic approach to duration of support states that spousal support should be awarded for half the number of years of the length of the marriage, but the court looks at it from more angles than just that. Oftentimes the court looks at the length of the marriage in combination with the age of the parties during the marriage. For example, a 10-year marriage from the ages of 19 to 29 might be looked at differently than a 10-year marriage from the ages of 39-49. Age of parties in the sense of their life phase also plays a role here. Are both parties retired? That could impact the possibility of alimony being awarded and the duration of payments. Additionally, the length of the marriage will also affect the consideration of permanent spousal support vs temporary spousal support. The longer the marriage is, the better the case for permanent spousal support if one party took a step back from their career for the benefit of the family during the entire marriage.
My last note about spousal support explains the benefits of modifiable support and answers the question of what happens when issues arise while receiving spousal support. While the payee may have the mindset that spousal support should be permanent and unmodifiable, the payor could be doing themselves a great disservice if support is not modifiable. For instance, what happens if the payor loses their job and can no longer pay alimony? With a modifiable support agreement, you can go back to court and agree upon a new support dynamic if now you are the spouse without any income. What happens if the payee wins the lottery? As the payor you would want to be able to go back to court and present your case to reduce or eliminate support if it is no longer needed by the payee. In the same vein, if you have a spousal support agreement and there is either an issue with receipt of payment for reasons such as your ex simply isn’t paying you, isn’t paying you the right amount, or has lost their job which could lead to both of the aforementioned outcomes, you will most likely be headed back to court to make sure these problems are taken care of. While it depends on your relationship with your ex-spouse, it’s rare that the payor can be persuaded outside of court to start paying you the agreed upon amount of spousal support if they decide they don’t want to anymore. This is a great example of the fact that divorce proceedings don’t just end when the divorce is finalized – there can be multiple additional trips to the courtroom and thousands of more dollars of attorneys fees paid when spousal support is involved. The same holds true for child support, so make sure to tune in next month to learn all about child support!
