Definition
Alimony is a financial support that a person is legally obligated to provide to their spouse during separation or after divorce. It’s typically arranged as part of a divorce decree, based on factors like the length of marriage, financial situation, health, and earning capacity. The goal is to minimize any unfair economic effects that divorce might have on the spouse who earns less income.
Key Takeaways
- Alimony is a legally obligated payment made to a spouse or ex-spouse after a legal separation or divorce. It’s designed to provide the lower-earning spouse with financial support.
- The amount and duration of alimony payments usually depend on several factors, such as the duration of the marriage, the earning capability of each spouse, standard of living during the marriage, and the ability of the payer to support himself or herself and the recipient.
- Alimony is usually tax-deductible for the person who makes the payments and taxable income for the person who receives them, but it can also be non-deductible and non-taxable, depending upon the circumstances and country’s laws.
Importance
Alimony is a crucial financial term because it represents the legally obligated financial support one spouse provides to the other after divorce or legal separation.
It is essential because it ensures the financially weaker spouse maintains as close to their usual standard of living as possible post-divorce.
Alimony plays a pivotal role in the divorce settlement negotiation process and can significantly impact each party’s financial future.
Its implications are wide-ranging, affecting areas such as income tax, living expenses, and financial planning.
Therefore, understanding the concept of alimony is vital in divorce situations.
Explanation
The purpose of alimony, also known as spousal support or maintenance, is to provide financial provision to a spouse after separation or divorce. The concept hinges on the belief that both parties, regardless of the dissolution of their relationship, have a continuing duty to support each other financially.
This is particularly designed to stabilize the economic imbalance that might arise on the dissolution of the marriage. The party who was economically dependent or less advantaged during the marriage can continue to sustain their accustomed lifestyle post-divorce with the help of alimony.
Alimony is used in situations where one spouse may have sacrificed career opportunities or advancement to care for the family or has never been a part of the workforce. The payment is typically awarded on a temporary basis to give the recipient time to gain necessary skills or education for self-sustenance, but can also be long-term depending on the circumstances.
It can be paid in a lump sum or in ongoing payments, depending on the agreement or court order. The amount of alimony is influenced by various factors including the length of the marriage, the lifestyle enjoyed by the couple, each party’s earning capacity and the needs of each spouse.
Examples of Alimony
John and Lisa: John and Lisa decided to get a divorce after being married for 20 years. During their marriage, John was the primary income earner, while Lisa stayed home to raise their children and look after the home. Upon their divorce, the court ordered John to pay Lisa alimony, to help her maintain the lifestyle to which she had become accustomed during their marriage.
Susan and Robert: Susan was a successful businesswoman, while her husband Robert was a teacher. When they decided to end their ten-year marriage, the court ruled that Susan needed to provide alimony payments to Robert. This was due to the significant difference in their incomes and the fact that Robert had given up opportunities to further his own career to support Susan in growing her business.
Emma and Steve: Emma and Steve were both well-established professionals when they married. However, Steve was forced into early retirement due to a medical condition and was no longer able to work. When they divorced, Emma was ordered by the court to pay Steve alimony as he was incapacitated and had no source of income. The alimony helped Steve afford his living and medical expenses.
FAQs on Alimony
What is Alimony?
Alimony, also known as spousal support or maintenance, is a legally mandated payment made by one spouse to the other after divorce or separation. Its purpose is to provide financial support for the spouse who was financially dependent during the marriage.
How is Alimony Calculated?
Alimony is calculated based on a number of factors such as the length of the marriage, the standard of living during the marriage, the relative income of each party, and the needs of each spouse. Each state may use a different formula or set of guidelines to calculate alimony.
Is Alimony Taxable?
Prior to the Tax Cuts and Jobs Act of 2017, alimony payments were deductible by the payer and taxable income for the receiver. However, for divorces finalized after December 31, 2018, alimony payments are neither deductible for the payer nor taxable for the receiver.
How Long Does Alimony Last?
The length of alimony can vary greatly and is determined by factors such as the length of the marriage, the ability of the receiving spouse to become self-supporting, and the financial health of the paying spouse. In some cases, the court may order ‘permanent’ alimony, where payments continue until the death of the payer, the remarriage of the recipient, or a change in circumstances.
Can Alimony be Modified?
Depending on the terms of your divorce decree, alimony payments can be modified. If there is a significant change in circumstances such as a job loss, a substantial increase in income, or a serious illness, the court may decide to modify the existing alimony agreement. However, some divorce decrees specify that alimony is non-modifiable.
Related Entrepreneurship Terms
- Spousal Support
- Divorce Settlement
- Child Support
- Marital Property
- Post-Separation Support
Sources for More Information
- Investopedia – A well-regarded online financial dictionary covering a wide range of topics including alimony.
- Internal Revenue Service (IRS) – The official U.S. tax collecting agency. It’s a reliable source for information on tax-related issues, which includes alimony.
- DivorceNet – A good source of legal information about divorce and alimony from legal professionals.
- NOLO – An online resource that provides legal information for consumers and small businesses, including information about alimony.
