IMPORTANT FEDERAL ALIMONY/SPOUSAL MAINTENANCE TAX CHANGES: For divorces finalized on or after January 1, 2019, the 2017 tax reforms eliminate the tax deduction for the payer of alimony/spousal maintenance and the requirement of the receiver to report these payments as income. Any divorces finalized before the end of 2018 will continue to be governed by the old law and the deduction and income reporting will still apply. The deduction for alimony/spousal maintenance is a very important and valuable benefit, especially for the receiving spouse.
Expect the courts to be completely swamped with pro se people and lawyers scrambling at the end of 2018 to finalize divorces. Plan ahead now so you don't miss the opportunity to take advantage of the deduction. The vast majority of Detente mediation clients finalize a divorce in a matter of months. In contrast, a contested, litigated divorce with lawyers rarely gets finished in less than a year. Don’t forget to figure in there is a 60 day waiting period (unless there’s family violence) between the day the divorce petition is filed and the first day a judge can finalize the divorce. If you wait too long to start mediation and to file your petition and many are ahead of you, there won't be enough time to finish mediation and to get in line at the courthouse after the 60 days to finalize the divorce before the end of 2018.
Why the alimony/spousal maintenance tax change matters to you:
Hypothetical: Suppose the spouse who pays alimony/spousal maintenance can afford to pay only $750 per month to the receiving spouse and the paying spouse’s income tax rate is 25% (there is no current 25% tax rate; but it works here for easy illustration). Assume the receiving spouse’s income tax rate is10% (which is a current tax rate).
Result under old law with alimony/spousal maintenance deduction: When the paying spouse can deduct the alimony/spousal maintenance payments, the paying spouse can actually pay the receiving spouse $1000 per month. This is because the paying spouse saves $250 in taxes (25% x$1000) every month which meets the paying spouse’s $750 per month limit. The receiving spouse actually gets $1000 per month, and pays income taxes of 10% on that money, effectively giving the receiving spouse $900 per month. In other words, under the old law the receiving spouse gets $900 at a cost of $750 to the paying spouse.
Result under new tax law without almony/spousal maintenance deduction: When the paying spouse cannot deduct alimony/spousal maintenance payments then the paying spouse can only afford to pay $750 per month and the receiving spouse only gets $750 per month. The receiving spouse gets $150 less each month than if the paying spouse had the deduction and the receiving spouse paid taxes on the money. Under the new law the receiving spouse loses money compared to the old law, even though intuitively it would seem like the receiving spouse would benefit from not paying income taxes on the alimony/spousal maintenance payment under the new law.
**The example above uses disparate tax rates between the paying spouse and the receiving spouse to illustrate the monetary effects of the old law versus the new law on the receiving spouse. The differences between the old law and the new law become less significant for the receiving spouse the closer the receiving spouse's tax rate is to the tax rate of the paying spouse. On or after January 1, 2019, if former spouses modify the terms of alimony/spousal maintenance to be different from those in an already finalized decree, they will need to state in the modification order that they wish to retain the deduction under the old law if they want the alimony/spousal maintenance payments to remain deductible.
Does Texas Have Alimony/Spousal Maintenance? Yes.
Yes! In Texas spousal support (a/k/a "spousal maintenance" or "alimony") is additional money, not part of a division of marital property or child support, that one spouse pays to the other temporarily from future income to support the ex-spouse after the divorce. If this money is also paid before the divorce is finalized, it is called “temporary spousal support”. Whether a former spouse receives spousal maintenance or alimony in Texas is more than a legal and economic question. It is one of the trickiest emotional issues of divorce.
Financial discussions during divorce can be difficult. A spouse often requests spousal support when he or she does not make as much money as the other, lacks a college degree, has been out of the work force raising the children or is facing a challenging job market. That spouse may feel deserving of compensation after divorce for sacrificing his or her own education and job to raise the family and support the other’s career. For the spouse contemplating paying spousal maintenance or alimony, it can be equally challenging to think about supporting the ex-spouse over and above child support and the divorce settlement if the soon to be former spouse contributed substantially fewer or no earnings during the marriage.
Spouses frequently blame themselves or each other for "creating" or "allowing" the situation in the first place. Spouses need to remember the actions they took in the past were decisions they made together in their family's best interests based on the information each of them had at the time. There was no crystal ball that could have foretold divorce, and if there had been, they probably would have made different choices. Ease up on each other and move forward to understand what options there are under Texas law for spousal support.
What Are Court Ordered Spousal Maintenance and Contractual Alimony in Texas?
Texas has two types of spousal support: “court ordered spousal maintenance” and “contractual alimony”. There are tax advantages to spousal support for divorces completed on or before December 31, 2018. The paying spouse can deduct the spousal support payments on his or her taxes which allows the spouse to pay more than he or she could have otherwise. The payments are taxable to the spouse who receives the money. When the paying spouse is in a higher tax bracket than the receiving spouse, the difference stays in the family's collective pocket and out of Uncle Sam's. For that reason spousal support can be an attractive and creative settlement tool in divorce mediation.
How Do I Get Court Ordered Spousal Maintenance in Texas?
“Court ordered spousal maintenance” is the kind a family judge can order a spouse to pay involuntarily. But just because the law provides for it does not mean it is easy to get, that it will be a large amount of money, or it will last forever. To the contrary, the eligibility requirements for court ordered spousal maintenance are high, the amount and duration are restricted, and it can be changed or eliminated later. There is no "palimony" in Texas, meaning a court cannot require someone to pay spousal support if there was no ceremonial or common law marriage.
Why is court ordered spousal maintenance limited in Texas? Texas is a community property state in which all community marital assets and liabilities are divided in a “just and right” manner on divorce by a judge, unless the spouses reach their own division by agreement themselves. In community property states like Texas, the financial division on divorce is usually as close to fifty-fifty asset by asset whenever possible, or if an asset cannot be divided, then it is offset by a different asset of equivalent value that is given to the other spouse. Generally, wages, bonuses, and income are divisible community property in Texas whether there is one breadwinner in the family or two. That means the court does not give all the money only to the spouse who earned it, and a homemaker is not penalized in the community property division for not working outside the home. For this reason, some see Texas’s community property laws as “protecting” a non-working or lower wage earning spouse on divorce.
The policy in Texas and the United States is it is in everyone’s best interests for as many people as possible to be employed. The theory is court ordered spousal maintenance can be a financial bridge between divorce and self-sufficiency. This is why it is often referred to as "rehabiliative" support. However, there is a prevailing view as well that spousal support creates a disincentive for a divorcee to return to gainful employment. That is one of the reasons the Texas legislature makes it tough for a former spouse in Texas to get court ordered spousal maintenance.
How to Get Court Ordered Spousal Maintenance in Texas
Eligibility. In September 2011 Texas substantially changed the eligibility rules for court ordered spousal maintenance. Under the 2011 law the spouse must first prove that after divorce (meaning after the division of assets and liabilities) there will not be enough property (including separate property) to meet his or her minimum reasonable needs (which usually means the spouse’s monthly expenses). After proving that, the spouse must also prove at least one of the following:
- the marriage has been for ten years or longer and the spouse made diligent efforts to either earn sufficient income or to develop necessary skills while the divorce is pending to meet his or her minimum reasonable needs; or
- the other spouse has committed family violence; or
- the requesting spouse has an incapacitating disability; or
- a child of the marriage (of any age) has a physical or mental disability that prevents the spouse who cares for and supervises the child from earning sufficient income.
Tip #1 for Seeking Court Ordered Spousal Maintenance in Texas: Don't Quit Your Job or Refuse to Look for Suitable Work, Training, or Education during Divorce!
Texas law requires a spouse seeking court ordered spousal maintenance who has been in a ten year or longer marriage to prove he or she tried diligently while the divorce is pending to earn enough money to support him/herself or to prepare for gainful employment by going back to school or getting training to develop necessary skills for work. Don't get suckered into plotting to quit a job or intentionally refusing to better yourself during divorce. The consequences can be devastating.
Tip #2 for Seeking Court Ordered Spousal Maintenance in Texas: Don't Try to Be Sneaky! Family judges know every trick, ruse, and excuse lawyers and parties use to try to get spousal maintenance or to avoid paying it. Spouses who misrepresent their own need and eligibility for court ordered spousal maintenance or their ability to pay what is requested will quickly and irreparably lose credibility with the judge.
Amount. If the judge finds a spouse is eligible for court ordered spousal maintenance, the judge has to decide how much to order and for how long. In most cases, the upper limit of the amount is the difference between the spouse’s monthly expenses and that spouse’s income, but that does not end the question. Determining the amount is not a simple math equation. By law, the judge must also consider:
- each spouse’s financial resources after divorce (including separate property);
- how paying child support or spousal maintenance affects both spouses’ ability to pay their bills;
- one spouse’s contribution to the other’s education, training, or increased earning power;
- the age, employment history, earning ability, and physical and emotional condition of the requesting spouse;
- each spouse’s education and employment skills and how long it would take for the spouse asking for maintenance to get education or training;
- whether either spouse inappropriately spent community funds or disposed of community property during marriage (also called “fraud on the community”);
- homemaker contributions;
- marital misconduct of either spouse; and
- family violence.
Maximum Court Ordered Spousal Maintenance in Texas. The cap on court ordered spousal maintenance (alimony) in Texas is set by statute. The amount of spousal maintenance the judge orders a spouse to pay involuntarily cannot be more than $5000 per month or 20% of the paying spouse’s average monthly gross income, whichever is lower.
Length of Court Ordered Spousal Maintenance in Texas. Generally, court ordered maintenance must be limited to the shortest reasonable time that allows the receiving spouse to earn enough money to meet monthly expenses unless the spouse has a mental or physical disability, is caring for an infant or young child, or there is some other compelling reason the spouse cannot provide for his or her minimum reasonable needs.
Caps on Duration. There are restrictions in the law for how long a judge can require a spouse to pay court ordered maintenance in Texas.
|BASIS FOR AWARD||LENGTH OF MARRIAGE||MAXIMUM DURATION|
|Family Violence||Less than 10 years||No more than 5 years|
|Married 10+ years||Between 10 and 20 years||No more than 5 years|
|Married 10+ years||Between 20 and 30 years||No more than 7 years|
|Married 10+ years||30 years or more||No more than 10 years|
|Disabled spouse||N/A||As long as spouse is eligible|
|Disabled child of marriage||N/A||As long as spouse is eligible|
Enforcement. It is very important to understand that even if a spouse is successful in persuading a judge to award court ordered maintenance, and even though the court can enforce that order by contempt (fine or jail time), it still is not a done deal. The paying spouse can come back to court later and ask for the amount he or she pays to be reduced or eliminated entirely if there is a substantial change in the receiving spouse’s ability to meet monthly expenses or in the paying spouse’s ability to pay. Again, spousal maintenance is not favored in Texas, and because it can be modified or eliminated, it is not a sure bet.
How does court ordered spousal maintenance end? Court ordered spousal maintenance ends by law if:
- either the payer or the receiver dies;
- the receiver remarries; or
- the court orders it ends including when the judge finds the receiving spouse is living in a permanent place of abode with another person in a dating or romantic relationship.
What if a spouse does not have enough money to pay court ordered spousal maintenance? Before a judge grants a request for spousal maintenance, the judge must take into account whether a spouse who is ordered to pay court ordered spousal maintenance actually has the financial ability to do so. If not, a judge will often consider awarding a disproportionate share of the marital assets and/or less of the debts to the eligible spouse in lieu of cash payments. Judges generally choose to order payments or award a disproportionate share of the marital estate, but not both.
Please take all of these factors into consideration if you are thinking about pursuing court ordered spousal maintenance. As in everything, you must weigh the potential benefits against the potential risks as you navigate through a divorce. For this particular issue, you must ask yourself whether the cost in terms of money, stress, and potential damage to the future relationship with your child’s co-parent of fighting for the court to force your spouse to pay court ordered maintenance will exceed the amount a judge may award or be worth it in the long run? If not, read on, because there is another kind of spousal support in Texas called “contractual alimony”.
What is Contractual Alimony in Texas and How Do I Get it?
The other kind of post-divorce spousal support in Texas is “contractual alimony”. It is voluntary and paid according to a contractual agreement between the spouses as to how much it will be, how long it will last, and under what circumstances it will reduce or end. There are no legal eligibility requirements. If there are financial resources to do so, most commonly divorcing couples use contractual alimony to establish a required monthly stream of income (usually in addition to child support) for a self-employed, unemployed, or underemployed spouse at the time of divorce to qualify to rent an apartment, borrow to buy a car, or for a new mortgage loan to buy a house or to refinance the current home into his or her own name.
Stay at home parents or nonworking spouses frequently ask for assistance for a period of time from their spouses to help with tuition or educational expenses through contractual alimony if they want or need to return to school to establish or enhance a career, provide for themselves, and contribute more money toward children’s needs.
However, there is no guarantee for contractual alimony either. Unlike for court ordered spousal maintenance, the family court may not enforce contractual alimony by contempt (fine or jail time) against the nonpaying spouse. Contractual alimony is by agreement, so the court can treat nonpayment only as a debt of the nonpaying spouse and the court cannot require the spouse to pay for any time beyond the period the court could have ordered under the laws for court ordered spousal maintenance (see above).
How does contractual alimony end? Like court ordered spousal maintenance, contractual alimony ends if either spouse dies. However, unlike court ordered spousal maintenance, contractual alimony does not end if the spouse receiving the alimony remarries or cohabitates with someone in a dating or romantic relationship. Instead, a spouse who wants to stop paying alimony in those situations must include those specific terms in the divorce decree.
Tip for a Spouse Seeking Contractual Alimony: Contractual alimony is by contractual agreement only. Spouses seeking contractual alimony in Texas can avoid making a costly strategic error by getting complete information about the family finances before deciding how much alimony to request from the other spouse. A spouse should make sure he or she knows how much money there is to go around before jumping the gun out of fear and demanding an unreasonably high amount.
There are consequences to making a demand for alimony that is above the paying spouse's available resources or that is outside the legal parameters for court ordered spousal maintenance (see the table above). Such demands almost always cause the other spouse not only to get mad, but often to seriously question the ability of the requesting spouse to make sound financial choices in the future. Too high a demand for contractual alimony also frequently erodes the requesting spouse’s bargaining and negotiating power. When that happens, the spouse who was feeling scared about supporting him or herself after divorce will have an even harder time feeling comfortable negotiating division of assets.
The distrustful spouse may now feel the need to protect assets and keep them in his or her control rather than to have them in the hands of the other spouse who (rightly or wrongly) may appear unable to understand the financial picture and/or to manage money well. Impulsive, premature, uninformed actions and demands can jeopardize your credibility. Outright refusal to consider alimony can have the same result. For these reasons it is important to begin the actual negotiations of the property division, child support, and alimony only after everyone has complete information, understands the law, and has explored all options.
Spouses seeking spousal maintenance ("alimony") in Texas must consider the financial picture, and take account the tax implications and the emotions alimony brings up for everyone involved. A mediator can help to sort through these elements so the spouses can have a calm, informed discussion about alimony and reach a reasonable agreement in all of their best interests.