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.
ORIGINAL POST: You will encounter a number of expenses in the process of ending your marriage. Not only do you have to pay attorney’s fee, court costs, and charges for filing paperwork, many others follow in the wake of divorce. There are expenditures associated with setting up a new home, your tax status changes, and you may wind up paying all the bills from a single paycheck for the first time in years. If there are children involved, you may have to pay child support. And in some cases, the court may award spousal support to your ex.
After the property division has been handled, if the split is such that one spouse has an additional need, spousal support may be ordered. If each side is able to maintain roughly the same lifestyle enjoyed during the marriage, this may not come to pass. But if there is a substantial gap, it may.
Oregon has three types of spousal support, which is commonly referred to as alimony. Less formulaic than child support, the amount and duration of the payments varies a great deal depending on the situation. In most cases, the number is based on need and what is just and equitable given the circumstances. Many factors figure into the final decision, including age, health, future employment outlook, and more.
Types Of Spousal Support
Transitional Support: Transitional spousal support is precisely what it sounds like. It’s awarded to one party in order to help smooth over the move from married back to single life. Shorter in duration and not usually as long a commitment, this is most common in brief and mid-length marriages. Transitional support usually comes into play to help one spouse get training or education that will aid in advancing job prospects and earning potential.
Compensatory Support: Less common than the transitional variety, the court may award compensatory support in some cases. If the division of property skews substantially to one party, this may come into play. In situations where one party contributed a great deal to the career and future financial prospects of the other, the judge may also award this. For example, it can be granted if a husband worked full time to support his wife through college or in similar circumstances. Of the three types, this is the least common.
Maintenance Support: When it comes to longer marriages, the court may mandate that you or your spouse pay maintenance support. This type of payment is awarded most often when there is a sizeable disparity in earning power. In many cases, this is a gap that may never close. The court can order temporary maintenance support, but in many cases, these payments continue indefinitely and remain open-ended. This is especially true when one spouse may be unable to find suitable future employment due to health issues or other reasons.
While these are the three types of spousal support, the court can also award a combination. For instance, during the post-divorce transition period, payments may be larger. But they may shift to a smaller maintenance amount at some point down the road.
Impact Of Spousal Support
Spousal support has an impact on the taxes of both individuals. For the receiving party, these payments constitute income and are taxed as such. On the other hand, these financial disbursements are considered tax deductible for the paying spouse.
Spousal support can be a hugely complicated affair. Depending on the circumstances, the length of time you make the payments, and the amount, the situation will be different for everyone. In general, spousal support doesn’t end in cases when the receiving spouse remarries. Either party can request a hearing to modify the orders, but this doesn’t happen automatically.
One thing to be keenly aware of is that modifying spousal support after the fact is exceptionally difficult. In order to earn an amendment, a substantial, unforeseen change in circumstances must take place. Even then, the courts may be resistant to any change.
Because of this, it is critical to be vigilant when establishing spousal support during the divorce proceeding. Once the amount is set, it can be time-consuming and costly to alter. Take your time and make sure you completely understand the situation before signing anything.
Financial matters following a divorce can have a huge impact on your life moving forward. No one wants to start their next chapter in a hole. As things can become so tangled, it will likely be in your best interest to consult an experienced attorney. This may give you the best chance for an optimal outcome.
If you have questions about your divorce or spousal support situation, feel free to contact Goldberg Jones at our Portland office.