UPDATE: The sweeping new tax plan Congress passed at the end of 2017 will impact almost everyone. This includes changes to divorce settlements, specifically those involving spousal support.
Beginning January 1, 2019, on new court orders that include spousal support provisions, the party paying spousal support will no longer be able to deduct this amount. At the same time, the recipient will no longer have to pay taxes on this amount. As it currently stands, the opposite is true. This may impact the way people negotiate divorce settlements. Some estimate spousal support payments could drop as much as 10% to 15%.
However, this large change in spousal support taxation policy will not apply to existing divorce orders (those entered prior to January 1, 2019). These orders, so long as not later modified, will be grandfathered in at the prior tax policy.
It is important to note that any Modification after December 31, 2018, to a pre-existing court order re spousal support will likely be subject to the new laws. So, if you have an order in place before 2019, the old regulations still apply. But if you modify the order after the new tax plan takes effect, you’re likely subject to the new rules.
What is alimony?
Impacted by economic, cultural and social factors, alimony has evolved into a transitional tool to help economically disadvantaged spouses become financially self-sufficient after the end of a marriage.
The concept of ongoing support underwent a significant change as divorce laws evolved in the 19th century. Alimony became tied to at-fault divorces when marital misconduct was present. This interpretation of alimony operated on the assumption that the wife was entitled to ongoing support because if the husband had not committed the marital misbehavior the marriage (and support) would have continued.
Conversely, if the wife engaged in marital misbehavior she was considered to have voluntarily forfeited the claim to ongoing support. This paradigm shifted significantly with the rise of no-fault divorces—also known as irreconcilable differences. California was the first state to allow no-fault divorces in 1969 and the adoption of no-fault divorce spread quickly—by 1985 all states (except New York) had enacted no-fault legislation.
Another key factor in the evolution of alimony was the 1970 United States Supreme Court ruling that prohibited a gender bias in alimony awards, meaning men were just as entitled to receive support as women.
Spousal maintenance has transformed and had a change of moniker; in Oregon, it is now referred to as spousal support. With the name change also came an updated interpretation. Spousal support is designed to be transitional in nature to allow a financially disadvantaged spouse to adjust to the new economic arrangement that comes with divorce.
In some instances, spousal support can be awarded for the entirety of the recipient’s life. While not common, in situations where one spouse has never worked outside the home and the length of the marriage is substantial, it is possible that spousal maintenance will be established to provide support for the duration of the spouse’s life.
Spousal Support Reform
There is a growing movement to eliminate permanent alimony completely. Recently a bill was passed in Florida banning permanent alimony and defining what constitutes a long-term marriage. Governor Rick Scott ultimately vetoed the bill, but it highlights some of the changes that alimony reform seeks to implement.
In addition to the elimination of permanent alimony, the vetoed bill sought to remove the consideration of standard of living during the marriage, and create a presumption that both parties will have a lower standard of living after the divorce. Additionally the bill would have created additional requirements and limits on how and when spousal support would be awarded.
The push for change in Florida comes on the heels of a measure passed in Massachusetts in 2011. The Massachusetts law went into effect in March 2012 and ended permanent alimony and provides guidelines for calculating payments.
It is worth noting that an award of indefinite or permanent spousal support has become increasingly less common as two income households have outnumbered single income families. According to 2002 U.S. Census data and the Population Reference Bureau, 31 percent of married couple households with children are dual-income families versus 13 percent of families where only the husband works outside the home.
The Massachusetts Alimony Reform Act and the changes sought in Florida will lay the groundwork for changes to Oregon’s spousal support laws. While there are numerous facets to the implications these reforms might bring, cohabitation is at the top of our “to watch” list.
Those receiving spousal support in Massachusetts will need to think carefully before cohabitating. Prior to the Alimony Reform Act taking effect, cohabitation had no impact on support payments. Under the new laws, living with a partner that contributes financially can trigger the reduction, suspension, or loss of support payments if specific factors are met.
With marriage rates declining, and cohabitation becoming more popular, it will be interesting to see how state laws will adapt to accommodate these changes. We will be keeping a close eye on the changes proposed to Oregon spousal support laws and will continue to weigh in on the potential implications.
What do you think? Do you think Oregon’s spousal support laws should be reformed?