When a couple divorces, they are inherently less financially stable. If both spouses worked, their buying power decreases mutually, but if one spouse stays at home, their income has effectively been reduced to 0. In order to protect spouses from potential financial ruin, the couple may agree or the court may mandate that one spouse pay alimony to the other.
Alimony is a payment or series of payments designed to maintain the standard of living that a former spouse enjoyed while married after they are divorced. Alimony payments can be a temporary accommodation that occurs during the divorce proceedings or they can be a permanently implemented part of the divorce agreement.
In general, alimony is given to a spouse who makes less than the other. When deciding alimony, the court will take into account factors including differences in income, life circumstances, and relative need. Additionally, if the divorce is filed due to some misdeed such as abuse or infidelity, that may also impact the alimony decisions.
Alimony is taxable as income, but how it is taxed has recently changed. Before Jan 1, 2019, alimony was considered income for the recipient and a loss to the payer. Therefore, the payer of alimony could write off the alimony as a deduction, while the receiver would owe money on their alimony payments. However, with the passage of the Tax Cuts and Jobs Act of 2017, alimony payers became responsible for paying taxes on their alimony and can no longer count it as a deduction on their taxes.
Each state has its own rules for calculating alimony, but broadly alimony is determined by comparing the incomes of both spouses, the payer’s ability to pay, and the recipient’s need for money. This can mean that if one spouse is financially successful and the other is not employed, the alimony will be greater than if both spouses were working.
Alimony can last until the financial obligation between former spouses is dissolved. This can be dissolved after a period of time specified in the divorce documents, such as in the case of temporary alimony payments during the divorce procedure, or it can be ongoing until the alimony recipient remarries. Sometimes a prenuptial agreement will include the terms for alimony payment or state that in the event of divorce, neither spouse will be financially responsible for the other.