What Are the Financial Effects of Alimony?

How Alimony Can Affect Your Finances

Divorce is a major financial change for New Jersey estranged couples, with long-term effects that linger long after the personal and emotional consequences have faded. Asset division and alimony can have a significant effect for households going through a divorce. Many people will need to make changes in their personal spending and lifestyles after the divorce in order to adjust their financial plans for their post-divorce future.

How Can Alimony Impact Your Divorce?

Alimony is not an issue in every divorce, and your family lawyer can provide advice and guidance as to whether this may be an issue in the financial settlement of your case. In essence, alimony is financial support paid by one party to the other party in order to address financial inequities and changes stemming from the divorce. Alimony is sometimes referred to as maintenance or spousal support, and it can be agreed upon by both parties in negotiations or ordered by a New Jersey family court judge.

The goal of a divorce settlement is to achieve an equitable distribution of marital assets as well as to enable both parties to continue to maintain their lifestyles. In many cases, alimony and spousal support are particularly relevant when one party was a stay-at-home parent or had otherwise taken on duties to support the home and marriage as a whole at the expense of their individual career progression. Without the possibility of alimony, people could be coerced into remaining in bad or even abusive marriages because they may face poverty as a result of leaving. In most instances, it helps to equalize outcomes and prevent one spouse from being left without an income.

Alimony can be open durational or limited duration. Open durational alimony is more common when the spouses are older and there is limited potential for the other spouse to boost their income separately through education and training. The type of alimony can also be affected by the length of the marriage. For example, open durational alimony becomes an option after a 20-year marriage. For people who have been married for less than 20 years, spousal support may not persist for longer than the marriage itself.

Spousal support is part of the overall financial package that is included as part of a marital settlement agreement. Your divorce attorney can provide important guidance about what you can expect to either pay or receive, since every situation is unique.

Setting an Alimony Amount and Duration

Alimony can be handled either as a series of ongoing monthly or other regular payments or as a lump sum delivered as part of the overall divorce settlement. Ongoing alimony may also be linked to a life insurance policy that ensures payments will continue for the coming period. While traditional alimony was generally paid out over regular periods, many current alimony orders are instead based on an up-front lump-sum payment that can then be used by the recipient as they wish to prepare for their post-divorce life. However, changes to tax laws have once again led some payors and payees to prefer a spaced, regular schedule of alimony payments.

Your divorce lawyer may have recommendations on the best solution for spousal support for your unique case. In general, public policy in New Jersey views alimony as a mechanism for temporary support to find work, beef up training or make other changes for a stronger career. There are differences from case to case, however, especially when both parties continue to believe that children should be cared for at home or should be homeschooled or have children with special needs that require full-time in-person care.

Because spousal support can be expensive, whether handled in a lump sum or with payments over time, either the spouses must negotiate an agreement about a fair amount or the family court judge must analyze the documents and information presented in order to reach a conclusion. Both parties’ family law attorneys may submit financial evidence and other data in order to reach a conclusion or finalize a settlement.

If the spouses have a prenuptial agreement in place, this may clearly outline the terms of a settlement and provide a guideline for the family lawyers involved. Spousal support is typically terminated by a specified date or a specific situation, such as the remarriage of the receiving spouse or the retirement of the paying spouse so long as there no longer remains an obligation to pay.

It is important to note that, while a prenuptial agreement can be very helpful in resolving questions about spousal support, postnuptial agreements are often harder to be upheld in court. Your divorce lawyer can provide further guidance on which agreements may be helpful.

Changes to Tax Law and Alimony

The 2017 federal tax reform bill affected people whose divorces involve the payment of spousal support. While people who were divorced before the end of 2018 were not affected by the change, all divorces that have taken place in 2019 and beyond have done so under the new rules.

In the past, the recipient reported alimony payments as part of their income on their annual federal tax return. The payer was able to deduct the amount on their return. However, since the reform, this option is no longer available. Now, recipients do not need to report their alimony payments as part of their income, and the amount is no longer deductible for the payer. In some cases, this may make it more difficult for both parties to reach a settlement as it has eliminated a major benefit for payers.

These tax laws have a significant long-term financial impact on spouses concluding a divorce and may motivate certain types of alimony payments over others, such as different divorce distributions rather than ongoing payments. Of course, the tax laws may also change again in the future, and your family law attorney can provide advice about any current changes or legislation that may affect your financial future in relation to alimony.

Spousal support is typically set at the time of the divorce, but people can go through major financial changes after the divorce is finalized. While spousal support obligations are not dischargeable by filing for bankruptcy, there may be valid reasons to return to court or negotiations for an agreement in some cases. A significant financial change can be a reason to reopen spousal support decisions, particularly in the case of ongoing payments rather than an earlier disbursed lump sum. It is also often advised that the recipient require an insurance policy as part of the settlement agreement that will provide sufficient coverage to pay off the alimony obligation in case of the death or incapacity of the payer.

Consult a New Jersey Family Lawyer

If you are considering how alimony may affect your finances after divorce, a New Jersey family law attorney may provide representation to help you achieve your goals. Contact the experienced divorce lawyers at Lawrence Law by calling 908-645-1000 or using our secure online form for a consultation about spousal support at our Red Bank or Watchung offices.

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