In many divorce cases, one party will be required to pay alimony to the other party. When determining whether someone is eligible for alimony, the type of alimony that must be paid, and the amount that’s to be paid, there are many factors that must be considered. Amy Wechsler, a Warren family lawyer, discusses New Jersey alimony law and some of the most common issues and questions that come up when alimony is being determined.
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Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Amy Wechsler, Certified Matrimonial Law Attorney
A partner of Shimalla, Wechsler, Lepp & D’Onofrio, LLP – a family law firm located in Warren, New Jersey – Amy has been practicing family law for more than 23 years. She has since become a Certified Matrimonial Law Attorney, arbitrator, mediator, and collaborative practitioner. Whether a case involves complicated financial issues, difficult custody decisions, or families struggling to meet basic needs, Amy will help guide you to the right process that best meets your needs and devotes her efforts to helping you achieve your goals and protecting your rights now and into the future.
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Read the Transcript of this Podcast Below.
What is alimony?
Alimony is a means by which one party pays support to the other following a separation or divorce. New Jersey has four types of alimony:
- Limited duration alimony in marriages or civil unions lasting fewer than 20 years cannot exceed the length of the marriage other than in exceptional circumstances, and is often for a shorter period. In exceptional circumstances, alimony lasts longer than the length of the marriage.
- Open durational alimony may be awarded in marriages of 20 years or more, and this does not have an end date.
- Rehabilitative alimony is for a short time to help a party be more independent by getting education, training, or gradually re-entering the workforce. The person seeking rehabilitative alimony must have a specific plan for this rehabilitation.
- Reimbursement alimony is for a party who supported a spouse to obtain an education during the marriage.
A judge can award more than one type of alimony if the facts of a given case warrant it.
How is alimony determined?
There are two elements to alimony: one is the amount, and the other is the length of time over which it will be paid. New Jersey law governing alimony requires a consideration of many factors when determining:
- whether someone is entitled to alimony, and if so,
- the amount and the duration of the payments.
You may hear of someone getting a great alimony award and think that will apply to you, but that’s not how it works. Every case is different and judges must weigh many factors, including: the need of one party for assistance; the ability of the other party to pay; whether there is a substantial difference in the parties’ current incomes as well as the difference in what the parties are reasonably capable of earning; the length of the marriage; the ages and health of the parties; the marital lifestyle and other factors.
Does New Jersey have a formula for determining the amount of alimony?
No. In New Jersey, there is no formula for the amount of alimony someone will receive. Many people may tell you that there is a formula or a rule of thumb, but judges deciding alimony are not permitted to simply apply a formula. Instead, they must give consideration to the statutory factors and to each couple’s particular facts and circumstances. For example, the amount of alimony may be lower in a shorter marriage than in a long-term marriage. If a party paying alimony has extraordinary high medical expenses, that fact could have an impact on the amount of alimony. The calculation of alimony is clearer for reimbursement alimony and rehabilitative alimony. In the case of reimbursement alimony, the amount would be based on specific expenses a spouse is seeking to be repaid. In the case of rehabilitative alimony, the amount would in part be based on the cost to acquire education, training, or take steps to enter the workforce.
Are divorced people guaranteed the right to live according to their lifestyle during the marriage?
There are no guarantees in the law. Marital lifestyle is one of the factors to be considered in establishing the need for alimony, but for most couples, it will not be possible to maintain the standard of living they enjoyed together in one household when they now must take those same resources and use them to support two households. This means it is unlikely that many couples will be able to maintain the marital lifestyle after divorce.
Marital lifestyle is also a combination of things. Some couples may have lived very modestly for most of the marriage, but due to raises, a new job, or one spouse getting a job after raising the children, they lived a much more comfortable lifestyle in the years immediately preceding the divorce. Assessing the marital lifestyle should consider how the couple lived over the course of their marriage. Also, marital lifestyle should distinguish between the needs of an entire family with children and the needs of a spouse in future years after the children are living on their own.
How is alimony affected by taxes?
In most instances, the person who pays alimony deducts it from his or her income when calculating income taxes. Then the person who receives that alimony will claim it as income when filing tax returns. There are some exceptions to this, such as when alimony decreases significantly in the first two years that it is paid, or when it is paid as a lump sum. In some instances, parties may decide to make alimony non-taxable to the recipient and non-deductible for the paying party, or they can make a portion of the alimony taxable and a portion of it non-taxable. Whatever they choose, it must be carefully set forth in their agreements so that it passes muster with the IRS.
How can alimony be modified?
If a former spouse can no longer afford to pay it, alimony may be modified provided the change in need or affordability is a change that is not a voluntary change, and it is substantial and not just a temporary problem. So, an alimony payor out of work for a month who then finds a job paying comparably to the prior job will not be entitled to reduce alimony. But, if that same person loses a job and, despite diligent efforts to find comparable work, can only get a job paying much less, he or she may have a good case to reduce or possibly terminate alimony. The only form of alimony that cannot be modified is reimbursement alimony.
What happens to alimony when the person who pays it dies?
Alimony ends when either the party who pays it dies or the party who receives it dies. Many couples provide for life insurance benefits so that, if the payor dies while he or she still has an alimony obligation, the recipient will receive life insurance proceeds. The amount of insurance is usually less than the remaining alimony payments; however, based on a number of factors, including the fact that the recipient would pay taxes on the alimony but not on the life insurance proceeds and the cost to maintain substantial levels of coverage over the duration of the alimony payments.
What if the payor becomes critically ill or disabled?
If this results in a non-temporary substantial loss of income, the person paying alimony can come to court to seek a reduction or possible termination of alimony. In determining whether relief is warranted, the payor’s disability benefits must be considered, because if these are substantial, it may not affect his or her ability to pay the alimony, in which case the court would not likely grant any reduction. If the court entertains an application to reduce support for this or for any other reason, both parties’ financial circumstances will be scrutinized.
What income is used to calculate alimony?
In New Jersey, income is broadly defined and nearly all sources of income are considered. This includes earned income, such as salary, bonus, commission, car allowances, deferred compensation, and income from a business. It also includes unearned income such as investment returns, interest and dividends, and income from trusts or rental property. Some business owners have benefits in the form of payments for expenses that may be only partially connected to the business, so a portion of those benefits may be included in income. Stock options and restricted stock units may also be considered income depending on how and when they invest. Pension income may or may not be included depending on whether the pension is distributed between the parties as an asset.
When does alimony end?
Although limited duration alimony will have a set time frame, there are events and circumstances that terminate alimony earlier, such as the death of either party or the remarriage of the recipient. Alimony may also terminate, or it may be modified, based on substantial changes in the parties’ circumstances following divorce, such as when the payor suffers a permanent job loss or disability or retires, or when the person receiving alimony cohabits with another person. This is not a sure bet, however. Termination, or even reductions in alimony for any of these reasons, will be based on many factors and an analysis of both parties’ circumstances.
If someone put their ex through law school or med school, for instance, they may not only have paid the tuition, but they may also have lost the opportunity to go to college and have a career themselves. Can someone get more than one type of alimony in recognition of what they gave up to advance their spouse’s career?
Yes, and people can get more than one type of alimony; in fact, you can get three types of alimony. You can get open durational alimony, rehabilitative alimony, and reimbursement alimony. Or if it’s not a permanent or what we call an open durational alimony case, then you can get rehabilitative alimony, reimbursement alimony, and limited duration alimony. The three elements would be based on the length of the marriage, based on the contributions that the party made to the education of the other, and if there were actual monies earned or money spent — perhaps pre-marital assets that were used to pay for the other party’s education — those could be reimbursed, so that would be an element of reimbursement alimony. If that same person had to work a clerical or a menial job in order to make ends meet while the other party went to school and, therefore, gave up working on their career, then that would be perhaps part of regular alimony. If that person now had a plan to go back to school or get training so they could re-start a career, that might require an element of rehabilitative alimony in addition to the other two types.
If spousal support is deductible to the payor and child support is not, can someone declare that all payments to their ex, including child support, are spousal support to save on taxes?
If they want to commit fraud, they can. I would suggest that the answer is no. Child support is not deductible for the person paying it and is not taxable for the person who receives it. The IRS and the State of New Jersey taxing authorities – because we are in New Jersey – do not permit that, and that would be fraud.