If you are in the process of getting a divorce, there are many thorny, complex issues that are likely to arise, including that of alimony. Most commonly, alimony is dispensed in month by month payments, but there are also lesser-known alternatives to paying or receiving monthly alimony payments.
At San Diego Divorce Attorney, we have deep experience in handling a wide variety of divorce and family law cases where alimony is involved, and we understand why many prefer to find an alternative to monthly payments. We can assist you in exploring possible alternatives and in finding a solution that works best for you (and that your spouse/former spouse and/or presiding judge will agree to.)
To learn more or for a free legal consultation on alimony or other issues related to your divorce case, contact San Diego Divorce Attorney today by calling 858-529-5150.
Why People Seek an Alternative to "Ordinary" Alimony Set-ups
In California, alimony isn't nearly as streamlined a process as many imagine. It isn't even automatic that alimony will be paid out at all, and determining which spouse will pay it, how much, and for how long is a complex process.
The fact is, while child support guidelines are more consistent and predictable under California law, spousal support (alimony) guidelines are much more flexible and less predictable. And what guidelines do exist only apply to temporary spousal support and do not result in automatic, predetermined dollar-amounts.
You and your spouse and both sides' lawyers have to work it all out and come up with an agreement that the presiding judge will accept.
Factors that weigh in on determining alimony amounts include:
- The ability of each spouse to maintain the standard of living of the marriage once single again.
- The cost of living in the localities where each spouse will reside, in relation to their current/projected income.
- The ability of the supporting spouse to pay, and the true needs/living expenses of the supported spouse.
- The contribution, if any, of the supported spouse to the supporting spouse's obtaining of an education, training, or professional license.
- The duration of the marriage, age of each spouse, and their health status.
- The way communal property and responsibility for debts was divided.
- Who has child custody and how much child support, if any, is being paid.
Now, that is only a partial list, and any time your situation or that of your X-spouse changes significantly, alimony payments could become unfair and might have to be renegotiated in court - if it's monthly alimony payments.
And continuing alimony will also affect how both parties need to file their taxes, impinge upon child support issues, and likely will be collected via wage garnishment.
The one paying alimony may not like seeing his/her wages garnished every paycheck, especially if child support is already being taken out. And if one becomes unemployed, laid off, or is forced into a lower-paying job, it's not guaranteed your alimony amounts will automatically be adjusted right away, if at all.
On the flip side, the spouse receiving support may not like wondering if the support will really come each month, wondering if maybe the supporting spouse will suddenly become unable or unwilling to pay.
And again, any alimony dispute (which could arise for a wide variety of not-uncommon reasons) could mean you have to go back to court and fight over these issues all over again.
It's easy to see why many desire an alternative to monthly alimony payments. That said, there are some benefits to monthly payments as well, such as the ability to deduct payments from your taxable income (but the opposite effect applies to those receiving the payments), and the fact that one might fear spending a lump sum payment too quickly, while regular monthly payments (so long as they come) require less planning and far-sighted financial management.
But you should at least consider some of the alternatives to monthly payments, which we'll look at now just below.
Alternative Ways to Pay or Receive Alimony
Given that you and your spouse (and the presiding family law judge) are willing to allow a different alimony payment method than month by month payments, what are your options?
First, realize that you need a good lawyer to help walk you through the process of formulating a fair, legally permissible alimony "deal" with you spouse. This is especially the case when it comes to more "creative," alternative alimony payment methods.
Here are the main alternatives:
1. Extra Community Property in Lieu of Spousal Support
One way to find a "one shot payment" method for alimony is to simply have the spouse who would have received monthly alimony waive that right in order to receive a larger share of the community property divided in the divorce process.
This would obviously have to be property of significant value, and often, it would be real estate (the one party takes the other party's share in what had been the family home, for example.) This eliminates possible fights over the management of real estate or other valuable property that can't be easily divided, plus simplifies alimony, in effect, to a "lump sum property payment."
2. Lump Sum Cash Payments
Many California divorce attorneys neglect to mention lump sum alimony as an option to their clients. In part, this may be because it takes a good deal of legal experience to understand how to legally make this option work. At San Diego Divorce Attorney, we can put this option on the table for you, if you so desire.
A lump sum payment will be taxable to the one receiving it, but so are monthly alimony payments at present. It eliminates the need to pay every month for the payer and the need to potentially chase payments, fight to be reimbursed for missed payments, or see a reduction in payment amount later on, for the one receiving the alimony.
On the other hand, you have to exercise discipline and not spend the money up right away if you get a lump sum alimony payment, and the one paying it obviously has to pay out a large amount all at once. That said, if the supporting spouse can afford it and the supported spouse would rather have a large one-time payment, lump-sum is a good option.
Note that you have to have the alimony technically labelled as a "settlement" to avoid paying taxes on the lump sum payment you receive. And you need to cross your legal Ts and dot your legal Is to get this kind of agreement approved. But with the help of a good lawyer, it can be done.
Also note that you can invest the alimony money lump sum payment and earn interest on it, something not practical with monthly payments where you need every dollar to get through each month.
Plus, note that lump sum pay-outs are particularly common when one or both spouses are elderly or nearing retirement age. Once a paying spouse reaches 65, he/she can legally retire and not have to pay alimony anymore. So, many receiving spouses would rather just take a lump sum amount if their X-spouse will retire in only a few more years.
3. Fixed Monthly Alimony
Finally, we mention a way you can avoid some of the potential problems of "regular" monthly alimony, while still sticking to a monthly payment schedule.
This is called "fixed" alimony. You simply agree to have the alimony be a fixed amount that cannot be modified, regardless of any lifestyle or other changes in the lives of either party that may come in the future.
This gives you certainty as to how much you will pay/receive, while maintaining a steady, month by month income for the supported spouse.
The Upcoming Tax Law Change That Will Affect Alimony
Currently, if you pay monthly alimony, you can deduct the amount paid from your taxes each year, while the supported spouse is required to pay taxes on the alimony money received.
However, this is about to change. As of 1 January, 2019, the one paying alimony will pay taxes on that amount, rather than the one receiving it. But that will also mean that the supported spouse will receive less alimony money (what he/she would have received minus the taxes.)
Plus, as alimony affects child support (and vice-versa), the effect of this upcoming change will be the reduction of child support since the payer's net income will drop (since the taxes will be deducted on his/her end now.)
Why is this being done? The answer seems to be because many who receive alimony fail to report it on their taxes. The state wants to get its tax dollars off the alimony income that it has been "losing" so often due to non-reporting of alimony income by supported parties.
As it stands now, paying parties don't mind paying a little more because it is tax deductible, but you can expect stiffer resistance and greater difficulty in agreeing on alimony without court intervention due to this law change.
How will this affect alternative alimony methods? Likely, it will cause them to increase since the benefit of monthly alimony will decrease and the attractiveness of alternative alimony payments will be enhanced.
Note that if a divorce is finalized before the end of 2018, the "old rules" will still apply; but afterwards, the "new" rules will be used to determine your alimony. And a lump-sum or property-based alimony can't be changed, while a monthly scheme could eventually be changed to conform to the new rules.
Predicting Alimony Amount/Duration
When determining how much value an alternative, no-time alimony settlement should be (whether paid in money or in extra communal property), it's critical that an accurate calculation be made of how much monthly alimony would have been ultimately paid out.
This takes a lot of experience to predict and calculate in a way that's fair and acceptable to both parties and is likely to be approved of by the judge. We at San Diego Divorce Attorney know how to arrive at reasonable, realistic alimony amounts that reflect the likely quantity and duration of the monthly alimony equivalent.
In most cases, alimony is only temporary and will be paid for less than 10 years. The time needed for the supported spouse to adjust to single life again and become self-sufficient is a key factor in most cases. But when marriages of longer duration break up, or if the supported spouse has a permanent health condition or other disability, that also has to be taken into account.
Plus, in California, child support has to be determined before alimony is. A good family law lawyer can help you sort through all of these interrelated issues simultaneously, saving you time and securing a fair overall conclusion to your divorce case.
Monthly Payments or One-time Payment, Which One?
We conclude by giving you a convenient summary of the advantages of monthly versus alternative alimony payment methods, to help you make an informed decision:
In favor of Monthly Alimony
- Regular income you can't spend all at once.
- Can be adjusted to fit a new situation, if need be.
- Tax benefits up till 2019 for the supporting spouse
In favor of Alternative Alimony
- A one-time solution. You never need to fight in court about it again.
- No waiting and worrying if payments will really show up this month.
- No worrying you'll be forced to pay alimony you can't afford after losing your job or current income level.
- The receiver can invest any lump sum amount in order to earn interest on it.
- If your "alimony" is getting full possession of a house or other valuable item, you don't have to hassle with sharing that property with your X-spouse for years to come.
As you can see, there are both pros and cons to "traditional" and alternative alimony. And there is more that goes into making the decision than even what we mentioned here in this article - and feel free to contact us with any questions you may still have on the topic!
Contact Us Today for Assistance
At San Diego Divorce Attorney, we understand the details of California alimony law down to the legal minutia, and we have extensive experience in handling divorce/alimony issues in local L.A. and Southern California family law courts.
We will be able to answer your questions about alimony and help you weigh all relevant factors involved in monthly alimony payments versus the possible alternatives.
Contact us today at 858-529-5150 for a free consultation and immediate assistance with your case!