Is there a Difference between Spousal Maintenance and Alimony?
Spousal maintenance, spousal support, and alimony all refer to payments made by one spouse to the other either during or after a divorce to assist with their living expenses. In New York State, the Domestic Relations Law refers to all monetary support paid by one spouse to the other spouse incident to a divorce as “maintenance.” On a federal tax return, however, it is still referred to as “alimony.” Post-divorce maintenance is usually set for a specific amount and duration to afford the recipient spouse time to gain the skills or training necessary to become self-sufficient, hence the term maintenance.
In 2016, the New York state legislature created two different formulas for courts to use as guidelines when calculating the amount and the duration of spousal maintenance: one for the situation where the payor spouse is also paying child support, and the other used when the payor spouse is either not paying child support or is receiving child support from the other parent. The statutory formulas take the incomes of each spouse and the duration of the marriage into consideration, and apply to all divorces filed on or after January 25, 2016.
An income cap of one-hundred seventy-five thousand dollars ($175,000.00) per year is applied under the formulas. It is important to note that the result of a formula, though, is a guideline and that ultimately, it is the court that holds the discretion to adjust the amounts, depending upon the facts and circumstances of the case, which includes marital lifestyle.
Spousal Maintenance Amount and Duration: Factors
The court considers the practical needs and responsibilities of each party while moving forward. For example, if the parties have young children, and the custodial parent cannot re-enter the workforce without additional school or training, the duration of maintenance may exceed the guidelines. Conversely, if the non-moneyed spouse has the training and ability to work, income may be imputed despite the fact that the spouse is not currently in the workforce.
In addition, if the parties had a high standard of living during the marriage, and one party has a much higher earning capacity than the other, a court may likely pierce the income cap when applying the maintenance formula.
Lump-sum vs. Monthly Spousal Maintenance Payments
Generally speaking, when a wealthy spouse makes a lump-sum payment to the non-moneyed spouse, it’s paid as a distributive award, which has no tax consequences for either party. One of the more useful tools in resolving support-related issues is the tax deduction benefit available to a spouse making a stream of spousal maintenance payments in accordance with the requirements of the Internal Revenue Code.
Since maintenance is paid by a spouse with a higher earning capacity – and presumably a higher tax bracket – to a spouse with a lower earning capacity and lower tax bracket, there is a tax savings incentive which enables a “moneyed” spouse to make a higher support payment with a net savings that is not available if a distributive award is made. This tax savings results from the fact that a payor can deduct the maintenance paid to the lower-earning, former spouse from their income when filing income tax returns.
Maintenance paid over several years is likely to enable the paying spouse to maximize his or her tax benefit. Often times, we are able to structure settlement terms within the tax rules where the lowest amount of taxes would need to be paid.
A Change in Circumstances Can Affect Support Payments
In any New York divorce proceeding resolved after 2010, the payor of child support may apply for a reduction in support if his or her income is reduced by fifteen percent (15%) or more, or three (3) years have elapsed since the payments began, or there is a substantial change in circumstances, such as disability of the payor spouse. With respect to child support, both parties are entitled to revisit it: If either party’s income changes by fifteen percent (15%) or more, support could be increased or decreased accordingly.
With respect to spousal maintenance, the payor may apply for a reduction of support if a substantial change of circumstances occurs, or if the recipient spouse gets a higher paying job, or inherits a large sum of money, etc. that would reduce the need for support. If the recipient’s income increases by fifteen percent (15%) or more, the payor may be entitled to a reduction in his or her spousal support payments, but not his or her child support payments.
Both parties have the right to revisit support when there’s a substantial change in circumstances: The payor has the right to revisit his or her support obligations if the recipient no longer needs the original level of support, and the recipient of maintenance may seek an upward modification if the payor’s income increases.
For the payor to have their support obligations reduced, the change in circumstances must be involuntary. If someone quits their six-figure job as a software engineer to work for minimum wage in a hardware store, a judge will likely impute income to the payor and not reduce the payments. In other words, the judge will not only consider the greatly-reduced income now being earned at the store, but also the amount the payor would be earning if they were still working at the software company.