Spousal Support Strategies That You Should Know

Spousal support or alimony can be both the most contentious and complicated discussion in a divorce negotiation. One spouse may need it, but the other spouse does not want to pay it. It is a long-term commitment and connection, both things that a divorce is trying to end. But in most long-term marriages it is a financial right. How can you develop a strategy in asking for your alimony?

Know the Rules of the Game

One thing that is not obvious to a layperson is the rules around spousal support calculations are state specific. Some states have a set percentage, other states relate payments to the length of the marriage and duration of the payment while others do not allow spousal support at all but designate funds to be paid for a limited time for specifically prescribed purposes. Understanding the framework of how spousal support is calculated in your area is your starting point.

Next factor in the 2017 tax reform that eliminated the tax deductibility of alimony and made it tax free to the recipient. The effect has been a reduction in the amount, or the percentages paid in most jurisdictions.

Make Sure You Consider All Income Sources

It is critical that you focus on all income sources. This is where a CDFA can be of help. We are used to asking and locating all income sources. Be aware of your date of separation as this is often the dividing line for the division of both marital assets and income.

Some of the most common income categories are:

• W2, bonuses and Commissions
• Deferred Compensation
• Business Income
• Equity compensation sources from options.
• Royalties, speaking fees, rental income, tip income, employee perks, expense reimbursement.
• Investment income. Oil and gas lease payments, side gigs, home based businesses. 

Review Expenses

• Review previous expenses from different time periods to determine if there are any unusual patterns.
• Note historical debt levels, has there been a change to borrowing habits? Has there been an increase in home equity borrowing, margin funds or credit card spending? Review credit reports to determine indebtedness that might now be showing up on financial statements.
• Are there going to be additional expenses for minor children, educational medical or special needs support?

Begin the Calculation Process

 Here it is important to review both the income and expenses, identify and correct any unusual patterns and begin to consider the possibilities.

• Payments- What will be a dedicated amount paid to the receiving spouse as is indicated in the statutory rules in your jurisdiction? 
• Time- What is the statutory framework of duration in your jurisdiction?
• Are there extenuation issues to consider, age of parties, health of parties, proximity to retirement, care of other dependents, stability of employment to name a few?
• Will there be a step down indicated for support over time as children emancipate or spouse seeks more training and enhanced employment?
• Is a lump sum buy out a more amenable prospect? 
• Are there other assets to trade or use in lieu of spousal support?

The important thing to recognize that spousal support is unique to each divorce unraveled by each unique data set.