Everything You Need to Know to Negotiate Alimony
Developing an alimony agreement is one of life's least enjoyable experiences. But a little advance preparation and research can make the process much smoother.
If the statistics are accurate, chances are pretty good that many of us will find ourselves engaged in alimony negotiations at some point. In Western cultures, more than 90 percent of people marry by age 50, according to the American Psychological Association. And in the United States, 40 to 50 percent of married couples ultimately divorce.
Negotiating alimony (otherwise known as spousal support or maintenance), as part of a divorce can be stressful, overwhelming, and fraught with emotion for both parties involved. Here are a few important points to keep in mind when it comes to alimony settlements, as well as tips to help you arrive at an alimony figure that makes sense-and enter negotiations well-informed.
Don't skip doing your research
There's a wealth of information online designed to help divorcing parties sort through the many questions surrounding alimony. Taking the time to read through some of the available information can be a helpful place to start. Not only do alimony laws vary from state to state, but you also don't want to leave money on the table (or conversely, come to alimony talks with entirely unrealistic expectations).
One of the most comprehensive sites to start with is MaritalLaws.com, which not only includes a state-by-state look at alimony laws, but also offers an alimony calculator that allows users to input such information as the payor and payee's gross and net salary and the length of the marriage, in order to develop a ballpark alimony figure.
Negotiate like your life depends on it, because it usually does
In addition to understanding the laws and parameters at play in alimony negotiations, it's critical to think realistically about your needs with regard to such financial support, says Jeffrey Knipmeyer, principal at Nottage and Ward, LLP, a family law firm based in Chicago.
"The baseline for any support, whether it's alimony or child support, is a calculation of the guideline amount that one is entitled to pursuant to statute, based on the income and financial resources of each party," explains Knipmeyer. "However, for most individuals, a better gauge of the amount of support that will be required is the needs of that party."
Theoretically, legal guideline calculations of support would be adequate to meet the needs of the spouse. But in reality, that's rarely the case, continues Knipmeyer. As a result, it's important for you and your attorney (if you have one) to truly understand money needs and actively negotiate to meet those needs, rather than merely accepting guideline calculations.
When you're considering figures for alimony, it's also important to understand what your financial picture looked like during the marriage, which constitutes the marital lifestyle, as well as what it looks like apart from the marriage. Understanding the gap between these two different scenarios should help you arrive at a figure for ongoing support.
"Having an accurate budget of your day-to-day expenses can be invaluable when doing this," says Sarah Jacobs, co-founder, and owner of Jacobs Berger, LLC. "It will relieve some of the stress for you just knowing that you have a clear picture of what was spent during the marriage and what you need in the future."
Alimony for stay-at-home parents
Chicago-based attorney Derek Bradford, a founding partner with the family law firm Bradford & Gordon, says stay-at-home parents often have their own unique set of concerns when it comes to pursuing divorce and alimony.
"I can't tell you how many stay-at-parents, particularly moms, are afraid to seek divorce because their spouses have threatened to 'take everything.' The reality is that this can't really happen," says Bradford. "The current statute in Illinois, which is similar in most states, provides that everyone has an obligation to attempt to become financially independent. Most moms will have to find employment eventually. But for families who have the means, alimony (or maintenance payments) can give moms more time to stay home with their kids."
Is alimony taxable?
When it comes to taxes and alimony, there's good news and bad news. The federal tax code pertaining to alimony changed on January 1, 2019, says Jacobs. At that point, the tax deduction for the party paying alimony was eliminated, which is not great if you were the one impacted by the elimination. The law also did away with the taxable nature of alimony payments for the recipient. Meaning those receiving alimony payments are no longer taxed on the income (that's the good news). Those changes, however, only impact federal taxes.
"Every state may handle it differently at the state level," adds Jacobs. "For example, in New Jersey, alimony is still tax deductible for state tax purposes."
Options for negotiating and structuring alimony
Going straight to court is not the only way to handle alimony negotiations. And it may not be the best way. Mediation can provide a more palatable alternative for some; this approach provides the assistance of a professional mediator who can work with both parties to structure an agreement that works for everyone involved, says Erik Wheeler, of Accord Mediation.
Furthermore, just like there are various approaches to alimony negotiations, there are also various options for how you structure the final settlement. As the website NOLO explains, the range of choices includes receiving a single, lump-sum payment, periodic monthly payments, or even a property transfer.
"People sometimes get stuck negotiating a fixed amount, but there are many other possibilities," explains Wheeler. "For example, if the payor estimates that cash flow will be tight in the first two years after the divorce, but will improve later, the payments could be structured as a lower monthly payment for the first two years, and then increase for subsequent years."
"Or depending on your financial circumstances, you may want to consider paying a lump sum of alimony. This could be paid out in the very beginning, or it can happen later," continues Wheeler.
Those who don't have enough cash or assets to pay alimony, but who have equity in a home, could also consider a cash-out refinance on the home to pay the lump-sum settlement. Alternatively, says Wheeler, you may be able to negotiate reduced alimony in exchange for a different allocation of the other marital assets.
There are many good reasons why you might want to consider a lump-sum alimony payment up front, adds attorney Gabrielle Hartley.
"For instance, if you're divorcing someone who is likely to do his or her best to evade payment, or who earns inconsistent income, it may be in your best interest to take one payment up front," explains Hartley. "Also, typically, alimony terminates when you cohabitate or remarry. However, if you either take a pre-payment or specifically state that alimony is non-modifiable, you can ensure payment regardless of your change in circumstances."
Keep the full picture in mind
Finally, when it comes to creating an alimony agreement both parties are somewhat comfortable with, it's important to maintain a broad perspective, one that's inclusive of all elements of the division of assets, not simply the spousal support payments.
"Don't consider one aspect in a vacuum," explains Jacobs, of Jacobs Berger. "If a client of mine is only focusing on support, whether it's alimony or child support, I try to gently guide them to look at the full financial picture, which may include equity in a home, retirement accounts, college savings, and more."
Having a seasoned family law attorney who has relationships with financial advisors and similar professionals can be helpful when creating this type of 360-degree view.