What is Spousal Maintenance?
For couples who can agree to a divorce or legal separation by the end of 2018, there may be a financial reward. This is because in many situations, couples will agree on spousal maintenance as part of a divorce or legal separation. The financial reward is that the person paying spousal maintenance gets to deduct the payment off their taxable income. The person receiving spousal maintenance, also called alimony, counts it as income.
If you are reading this as a receiving party of a spousal maintenance order, you may be wondering why this is a financial reward.
Financial Incentive for Spousal Maintenance
The reward comes because person paying spousal maintenance is sometimes more likely to agree when they can deduct the payment off their income. I have cases where one spouse claims they are entitled to $6000 a month for ten years. The other spouse claims no maintenance should be paid. Getting the agreement to pay is a reward in itself.
This is a way that in collaborative divorce cases, many couples have structured financial support to keep money in the family. Less money goes to the government in taxes this way. Spousal Maintenance can be a highly emotional issue. An argument about alimony may be especially frustrating for the “out” spouse, the one who stayed home with the kids. “Out spouses” may feel they gave up their opportunities but now, no one recognizes their sacrifice. From the financially “in” spouse, we hear a different story. The “in” spouse will claim they felt unsupported, alone, or undermined. Emotions cause legal fees to increase dramatically if you are facing this battle in a traditional court case.
New Tax Laws Will Change Incentive to Pay Spousal Maintenance
The new tax laws that go into effect in 2019 say that if you are being paid spousal maintenance, you don’t have taxable income. If you pay alimony based on an agreement or order reached after 2018, you can’t deduct the payment off your taxes.
No tax deduction means less incentive for a person to pay alimony. The incentive is important because in Arizona, there is not a spousal maintenance calculator. The alimony calculator that judges previously used is not applied to court orders anymore. Though some attorneys do use a formula we have developed. An agreement is the best insurance that a spousal maintenance order will actually happen and the amount is one that everyone can live with.
What most couples will do is agree that they want to create their own spousal maintenance award. This is because neither person in the couple wants to take the chance of allowing the judge to decide. Judges vary from case to case and person to person in deciding spousal maintenance. If a judge orders too much money, the paying spouse can appeal. So people who fight about everything else agree they don’t want to take the biggest risk. The biggest risk is to take the case to a judge.
The “Lead Time” Factor in Divorce & Separation
If you start your case now, but you go to court, there is a strong possibility you won’t settle or get a divorce ruling by the end of 2018. Court typically makes conflicts bigger when people first enter the court system. I predict divorce lawyers in Arizona will be scrambling at the end of 2018 to reach wild agreements, just to ensure the tax deduction.
A financial neutral can evaluate all your finances and help clarify where you each stand. This can be done most easily through collaborative law. If you reach a spousal maintenance agreement before the end of 2018, the payments are tax deductible to the payor. If you are still paying spousal maintenance payments in 2028, you’ll appreciate the tax deduction. This gives the person paying alimony more incentive to reach an agreement on alimony.
Spousal Maintenance Qualifications
Spousal maintenance is the term used by judges in Arizona family courts. Spousal maintenance is paid under certain circumstances in Arizona. To qualify for a spousal maintenance order, a spouse has to show one of the following criteria based on an Arizona Statute:
- They lack sufficient property, including property awarded to them in the divorce, to provide for their reasonable needs.
- One spouse is unable to be self-sufficient through appropriate employment or cares for a child whose age or condition means the parent should not have to be employed outside the home. Or, the spouse doesn’t have the ability to earn adequate income.
- A spouse contributed to the educational opportunities of the other spouse, the payor.
- The spouses were married for a long time and now, the spouse seeking maintenance is at an age where they would not likely gain employment adequate to be self-sufficient.
In a litigated divorce case, once the court has found that one of these factors does apply the court will then examine sub-factors. For instance, the court will examine the standard of living during the marriage. When I have gone to trial on this issue, I’m looking at vacations the couple took. I look at the bank account balances for several years. We analyze credit card statements.
You Can Self-Determine
You know your standard of living better than I do. You know – and your spouse knows – if everyone is being fair, how you lived. Lawyers can try to prove that you lived like kings or a meager lifestyle. But this will cost so much in money and time. In 2018, you can still reach an agreement that keeps the money in your family. You can structure your taxes to keep money out of the government’s hands. People who can’t agree on anything else usually agree they would rather their kids have the money.
For the Arizona Revised Statute on Spousal Maintenance, click here for A.R.S. §25-319.
See our other articles, “Trumps New Tax Plan Impacts Spousal Maintenance” and “Alimony Mistakes Even Big Law Firms Make in Divorce.”
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