What Is an Alimony Payment?
An alimony payment—also called a “spousal” or “maintenance” payment in some parts of the United States—is a periodic, predetermined sum awarded to a spouse or former spouse following a separation or divorce. Payment structures and requirements to fulfill alimony are outlined by a legal decree or court order.
- Alimony payments are legally mandated monetary transfers from one ex-spouse to another to support the lifestyle of the other.
- Payments are normally issued in cases where one spouse earns a higher income than the other.
- Refusing to pay or not keeping up to date with alimony payments may result in civil or criminal charges for the payer.
- The Tax Cuts and Jobs Act (TCJA) eliminated the tax deduction for alimony payments on divorce agreements executed on or after Jan. 1, 2019.
How Are Alimony Payments Determined?
Alimony is a legal obligation in which one spouse makes regular payments to the other spouse—former or current. Payments are normally issued in cases where one spouse earns a higher income than the other. When a married couple becomes legally separated or divorced, both parties can agree to the conditions of alimony on their own. However, if they can’t come to an agreement, then a court may determine the legal obligation—or alimony—for one individual to provide financial support to the other. Some of the things that a judge will consider include:
- The amount that each party may reasonably earn every month
- The reasonable expenses that each party will incur
- If alimony can make it possible for the receiving party to maintain a lifestyle that is close to what the couple had during the marriage
- The length of the marriage
- The age and health of each spouse
- The earning capacity of each spouse
- The financial situation of each spouse
- The economic and noneconomic contributions that each spouse made to the marriage
- Any economic opportunities lost due to the marriage
- Any other factor that a judge deems pertinent to determining whether alimony should be awarded—and how much
Alimony payments may not be issued if both spouses have similar annual incomes or if the marriage is fairly new. A judge—or both parties—also might set an expiration date at the onset of the alimony decree, after which time the payer is no longer required to provide financial support to their spouse.
Specific types of alimony available can vary from state to state. In California, for example, there are five:
- Temporary Alimony—Paid while the divorce is pending, it can include divorce costs and daily expenses, and it ceases once the divorce is finalized.
- Permanent Alimony—Paid on a monthly basis, it continues until the death of either spouse or the remarriage of the lower-earning spouse.
- Rehabilitative Alimony—Paid while the lower-earning spouse attempts to increase their employment chances through education or training or while on a job search, it ceases either after a fixed period of time or when the payee becomes self-supporting.
- Reimbursement Alimony—Paid to reimburse a lower-earning spouse for expenses such as tuition or work training, it is not ongoing.
- Lump-Sum Alimony—Paid in lieu of a property settlement, it is ordered when one spouse doesn’t want any property or items of value from their marital assets.
As evidenced in the alimony types above, the termination of alimony is flexible and open to negotiation. Other situations that might be used as the reason to stop payments include retirement, children no longer requiring the care of a parent, and a judge’s determination that a recipient is not making a good-faith effort to become self-sufficient.
Refusing to pay or not keeping up to date with alimony payments may result in civil or criminal charges for the payer.
Alimony does not include child support, non-cash property settlements, voluntary payments, or money used to keep up the payer’s property.
Requirements for Alimony Payments
According to the Internal Revenue Service (IRS), alimony payments must meet the following criteria:
- Spouses must file separate tax returns.
- Alimony payments must be made by cash, check, or money order.
- Payments are made under a divorce or separation instrument to a spouse or former spouse.
- The instrument must specify the payments as alimony.
- The spouses must live apart.
- There’s no liability to make alimony payments after the recipient spouse dies.
Taxes on Alimony Payments
Divorce comes with its own set of tax implications, some of which were modified by the Tax Cuts and Jobs Act (TCJA) of 2017, which eliminated the tax deduction for alimony paid for divorce agreements executed after Dec. 31, 2018. Under the new rules, alimony recipients will no longer owe federal tax on this support, either.
These are big changes that will affect how many divorce decrees are structured. As things stand, the IRS permits alimony payments to be tax deductible by the payer for divorce or separation agreements executed on or before Dec. 31, 2018. However, agreements made prior to 2019 that were later modified stating the repeal of alimony payment deductions will be subject to the new regulations.
Decrees made on or after Jan. 1, 2019, no longer qualify for tax deductions for payment of alimony under the Tax Cuts and Jobs Act (TCJA).
Instead of cash payments structured into divorce decrees starting in 2019, some tax advisors suggest that the higher-earning partner award the spouse an individual retirement account (IRA), which is in effect a tax deduction, as no taxes had been paid on the amounts added to the account.
A potential issue here, though, is that the money ordinarily can’t be taken out before age 59½ without incurring a 10% penalty.