Geraldene Sherr Duswalt, Esq.
Alimony—or, spousal support—is a court-ordered financial payment that one spouse makes to the other. If one spouse needs funds during the divorce, the court can order what is called pendente lite (while the case is pending) support, which can include both alimony and child support. After the case is over, whether by settlement or trial, one party may be ordered to pay the other party alimony, or spousal support, which would be in addition to child support. There are several types of alimony:
Types of Alimony in New Jersey
Once your case is concluded, the judge may order or the parties may agree on one (or any combination) of four types of support: limited duration, rehabilitative, reimbursement, or open duration alimony.
Judges will award limited-duration alimony in cases where the supported spouse needs time to become self-supporting after the divorce. This will last a set period of time after the divorce. The law prohibits the alimony term from exceeding the length of the marriage. The amount of time the award is paid varies depending on the length of the marriage, the difference in the income of the parties, and all of the factors in the statute that are listed below.
Rehabilitative alimony is available in cases where the dependent spouse needs financial support while acquiring job training or education that will lead to employment and financial independence. The court requires the recipient to show the scope of rehabilitation, the steps necessary, and the time frame for the support.
The court will award reimbursement alimony if one spouse financially supported the other by helping support the other through an advanced education during the marriage and expected to benefit from the education. For example, if you supported your spouse through law school, but divorced before you could reap any financial benefits from it, the court may order your spouse to pay you back by an award of reimbursement alimony.
Open durational alimony is reserved for long-terms marriages that exceed twenty years, where a dependent spouse is unable to become self-supporting or to enjoy the lifestyle of the marriage.
Retirement; the alimony statute provides that there is a rebuttable presumption that open durational alimony will terminate when the supporting spouse attains full retirement age, (defined as eligible to receive full social security benefits, except if there is a different mandatory retirement age), and actually retires. However, this is not automatic, and the presumption can be overcome depending upon the circumstances.
How is Alimony Calculated and What Are The Factors to Consider
- the actual need of the recipient and ability of the spouse to pay
- the length of the marriage
- each spouse’s age, physical and mental health
- the standard of living during the marriage and the likelihood that both can maintain a reasonably similar lifestyle after the divorce with neither having a greater entitlement to that standard than the other
- each spouse’s earning capacities, educational levels, vocational skills, and employability
- the length of time the supported spouse was absent from the job market
- parental responsibilities of both parties
- the time and expenses necessary for the supported spouse to acquire education or training to find employment, the availability of the training and employment, and the opportunity for future assets and income
- the history of each spouse’s financial and non-financial contributions to the marriage including contributions to the care and education of the children and interruption of personal careers or educational opportunities
- the equitable distribution of marital property during the divorce and whether the payouts are directly or indirectly from current income
- each spouse’s income from investments
- tax consequences of the alimony award to each spouse,
- the nature, amount and length of the pendente lite support paid, if any, and
- any other factors the court deems relevant.
The court has broad discretion when deciding alimony. Unlike child support awards, there’s no specific formula for judges to use when calculating spousal support. The court will start with each Case Information Statement, then take testimony about the finances, lifestyle while married, respective income, whether either party is either underemployed, or unemployed but can work, in which case the court can impute income. The court may then apply the economic reality test, meaning two separated people cannot usually live separately on the same budget that they were living on when living together. The judge may evaluate each budget and try to come up with something that is fair. Sometimes they get that right and sometimes they do not.
Trials cost money, they are stressful, and the outcome is uncertain. If you are concerned about what the court will decide, you and your spouse, with the help of your attorneys, can negotiate an alimony agreement without the judge’s input. The terms can be memorized in a settlement agreement and becomes binding. Most divorce cases in New Jersey are resolved by agreement.
There are a few instances where New Jersey law expressly prohibits alimony awards; to a spouse convicted of murder, manslaughter, criminal homicide, aggravated assault, or a similar offense if the offender caused death or serious bodily harm to a family member of a divorcing spouse after the marriage or civil union. Domestic violence may have an impact on an alimony award, depending on the circumstances.
If the supported spouse remarries or enters into a New Jersey civil union, both open duration and limited-duration alimony will terminate as of the date of the remarriage or civil union. The recipient must inform the supporting spouse of the remarriage or civil union immediately, or risk paying attorney fees and court costs to the supporting spouse.
If the supported spouse cohabits with another in a relationship tantamount to a marriage, alimony can be suspended or terminated. The law governing the impact of cohabitation on alimony is complicated, and should be considered carefully both at the time of the divorce and during the alimony term.
Remarriage and civil unions do not end rehabilitative or reimbursement alimony unless the couple agrees, or the court finds there is good cause to terminate the order. All forms of alimony terminate if either spouse dies.
Most payments are periodic, usually monthly. Couples can agree to the payment method, like direct deposit or mailing a check, or the court can include an income withholding order. Income withholding orders instruct the paying spouse’s employer to withhold alimony from the paycheck and send it directly to the recipient. Spouses can also agree to other forms of payment, such as Venmo or bank account transfers.
Modifying Alimony Orders
Either spouse can request a modification from the court, but only if the spouses didn’t agree, in writing, not to change the order. If modification isn’t prohibited, or the request comes under an exception, then the requesting spouse must prove to the court that, since the last order, there has been a substantial change in circumstances that justifies changing or ending the alimony.
Alimony and Taxes
For divorces finalized on or after January 1, 2019, the Internal Revenue Service (IRS) is treating the payments like child support: alimony payments are no longer tax deductible to the paying spouse or reportable income for the recipient.
Is There a Formula?
If you have been talking about alimony, you may have heard of the “rule of thumb”. Up until December 31, 2018, many lawyers and mediators used to use what was then known as “the one-third formula.” The “rule of thumb” was not authorized by statute or case law, the Appellate Division of the New Jersey Court has twice stated that there is no such thing as a one-third formula. However, during settlement discussions, the “rule of thumb” was used by lawyers and mediators as a starting point in the discussion. If a case was not going to go to trial, then the “rule of thumb” was used, and sometimes “tweaked” up or down if there were extenuating circumstance.
The “rule of thumb” or one third formula provided that we take the difference of the income between the parties and divide that difference by 3, and that was the alimony number. It was tax deductible to the paying spouse and taxable to the recipient. For example – if one party earned 100,000 and the other earned 25,000, the difference is 75,000. One third of the difference then is 25,000 which would be the alimony award, or starting point for the negotiation.
So the practical question for someone facing paying alimony or receiving alimony ultimately comes down to, “Will it be better for me to have the statutory factors applied to the facts of my case by a judge during a lengthy and costly trial, or might I be better off by just using the rather arbitrary but widely-accepted one-third formula?” While a review of the cases do show that often, but not always, the alimony awards are similar to the result that could have been obtained through negotiation. While that is not always the case, trial are expensive, and the outcome uncertain.
More often than not, most people ultimately agreed to use the one-third formula, perhaps with some adjustments upward or downward.
Tax deductible alimony provided a benefit to both sides. The paying spouse could pay more because he or she could deduct the amount at the end of the year, either adjust their withholding or receive a larger refund. The receiving spouse would be at a lower tax bracket and therefore would benefit from the larger payment and pay less tax on that money. The result was that both parties had more money.
Tax Cuts and Jobs Act
Then came the Tax Cuts and Jobs Act. For any divorce or separation agreement executed after December 31, 2018, (or an older agreement modified if the modification expressly provides that the new law applies) the payments are not deductible to the spouse that is paying alimony or taxable to the person receiving the alimony. As a result, the alimony awards are lower, so both parties have less money, and the government collects more tax money.
Since the law changed, for settlement purposes, many mediators and lawyers are now accepting the theory that it is logical to begin their analysis by taking between 23% to 25% of the difference between the higher earner’s income and the lower earner’s income as opposed to one third. This takes into consideration the possible tax brackets of both parties, as well as the lost tax benefit to the paying spouse and the benefit to the receiving spouse who no longer has to pay tax on the alimony. This replicates the simplified approach of the old “rule of thumb”. This number remains only a starting point in the negotiation, it is always a good idea to look at the actual tax returns, and the cash flow of the parties, to see if the number makes sense in each individual case.
If one party has a business, especially if there are cash payments, or a spouse is not working, or only working part time, then there are other issues to consider, such as imputing income, and crediting unreported income.
If you are considering a divorce, you should hire an attorney so that you can review your circumstances and start to strategize together to find a successful resolution of the myriad issues you may be faced with in your divorce. You will increase your chances of obtaining a fair result, without having to spend all of your hard-earned resources on legal fees.
My goal is to help New Jersey families by providing the best possible representation, to help you move on with your lives in a way that works best for your family. Please call for a free consultation to find out how the New Jersey alimony laws affect your particular situation. To set up an appointment at our Scotch Plains office call us at (908) 322-5160.