Bankruptcy rates among Americans over age 65 have tripled in recent decades. The reason why appears to be a perfect storm of financial strains — from spiraling health care costs and rising living expenses to too little in retirement and personal savings. If you are older and planning to divorce, you may be concerned about how your split will impact your financial future, especially if you will pay — or receive — alimony.
What if you can’t pay the alimony amount you’re ordered to — or if the amount you receive isn’t enough? What happens to alimony when you retire? What about taxes? And what other sources of income and support can you draw from in your senior years?
Money worries are real worries. You don’t want to become another unfortunate bankruptcy statistic among older Americans. But here’s some good news — you don’t need to be! No matter how old you are when you divorce, it’s possible to safeguard your golden years with a little forward-thinking savvy about your finances.
As you go about negotiating your divorce, here’s what you need to know about using alimony as a tool to secure your post-divorce finances.
If you will pay alimony, do everything you reasonably can to finalize your divorce by the end of 2018.
Here’s why: your tax bill will be lower. Under current rules, the spouse who pays alimony is able to deduct this amount from their taxes, lowering their overall tax burden. Depending on how much you pay, this could result in thousands of dollars in savings. Starting January 1, 2019, the new Trump tax law takes effect, which reverses this benefit. After January, spouses who pay support will be required to count payments as part of their taxable income. On the other hand, for spouses who receives support, this money will now essentially be tax free. (Formerly, the recipient claimed alimony as income).
Finalizing your divorce by the end of 2018 is so important because any divorce and/or alimony order finalized by December 31, 2018 will be grandfathered in under the old rules — meaning you can still get the tax deduction IF you act now. (If you are the spouse who receives support, consider yourself now in possession of a very important bargaining chip!)
Understand what “open duration alimony” is — and isn’t.
In 2014, alimony reform laws in New Jersey voided “permanent lifetime alimony” and replaced it with the concept of “open duration” alimony. For marriages with a duration of fewer than 20 years, the number of years that alimony may be sought must not exceed the duration of the marriage. For example, in a marriage that lasted 5 years, the spouse obligated to pay would generally only need to for a maximum of 5 years. In marriages that lasted for more than 20 years, financially dependent spouses can seek “open duration alimony.” If awarded, spousal support will last until such time that either party passes away or the recipient spouse remarries, or other exceptional conditions exist. If certain circumstances change substantially for either party after the open duration alimony agreement is reached, the agreement can be modified.
For older spouses on their second marriage, or who married late in life, the duration of the marriage may be relatively short, limiting alimony to a shorter period than spouses may have anticipated. If you are the recipient spouse and divorcing after a shorter marriage, it will be important to work with a family law attorney who can fight for all assets that are rightfully yours, including claims to retirement assets.
Learn the new rules for modifying or terminating alimony upon retirement.
In the past, payors waited until they actually retired before filing an application to terminate or lessen the amount of alimony. This meant they would need to wait —several months or longer — before receiving relief. Thanks to a recent court ruling, this process has now changed so that payors can now file for relief before they retire.
According to the ruling in Mueller v. Mueller, the courts are now able to issue an advance notification of spousal support termination or modification when (1) the prospective retirement will happen in the near future from the date the motion is filed, and (2) a detailed plan for the retirement is presented, including projected income in retirement, possibly saving them thousands in payments.
This is good news for the payor, but if you are the spouse receiving support, you must be ready to take action regarding spousal support to prove that you need it to continue, and in what amount. It will also be important to enforce any 401K/retirement plan QDROs from your divorce upon your former spouse’s retirement. Talk to your family law attorney about the best strategy for preventing any gaps in your income so that your standard of living expenses continue to be met.
Paying spouses now have the “right to retire”
Spousal support orders put in place after 2014 also contain a “rebuttable presumption” for paying spouses that “that his or her alimony obligation will end upon attainting full retirement age.” What this means is that when the paying spouse reaches full retirement age (67 years old), it is now the burden of the spouse who receives support to prove that alimony should continue in some form. When considering these requests, the courts look at factors such as all sources of income for both parties, the ability of the recipient spouse to have saved adequately for retirement, and other relevant factors.
What do these alimony rules mean for you and your golden years? It is important to sit down with your family law attorney and start mapping out your goals. Where do you want to be financially in 10, 20 and 30+ years down the road? Whatever the goal, alimony negotiation in divorce is a powerful tool for helping you get there.
If you have more questions about alimony or divorce, we are here to help. Safeguard your future by calling us today at 888-888-0919 schedule your confidential consultation with one of our highly skilled family law attorneys.