Alimony (also known as spousal support) is an amount paid by one spouse to another after a divorce to allow the lower-income spouse to continue meeting certain living expenses. Unlike child support, alimony isn’t guaranteed and the amount is at the discretion of the judge.
Using a prenuptial agreement, you and your spouse can outline alimony payments or waive them altogether (although, a few states don’t recognize the waiver and many others scrutinize it closely before declaring it to be valid).
Despite popular opinion, alimony can be a good thing. It is tax deductible and is considered income to the receiving party. That means that if one party has a considerably larger income than the other, it could be considered a tax advantage to both parties to allocate alimony.
When you create an alimony provision in a prenuptial agreement, you prevent the court from awarding it anyway and setting its own amount.
To qualify, alimony must be paid in cash – no property or debt assumption “trade-off” – and should generally be paid in similar amounts each year. Alimony that is paid heavily the first two years and then tapers off thereafter is often considered to be “front-loaded” and can result in the paying spouse having to reclaim the funds and pay taxes on the amount. This “excess alimony” rule was designed to prevent spouses from declaring property settlements as alimony and reaping the tax benefits it produced.
Alimony is considered to be separate from child support and cannot be affected by anything to do with the children. Remember that alimony is awarded as spousal support and can’t be stopped or reduced because a child got married , died or moved away from home.
Funds paid to a spouse can only be considered alimony if they were paid after a divorce decree or other legal agreement. You must be living in separate households and filing separate tax returns for the funds to be considered tax deductible.
Alimony can continue for any amount of time – fixed or unlimited. It can also be subject to certain conditions, such as the recipient spouse remarrying or a certain increase in income that outweighs the amount of the support. Alimony always ends when the recipient spouse dies.
Only you and your spouse know your particular situation, which is why outlining alimony support in a prenuptial agreement may make good sense.
Approaches to determining the amount of alimony differ from state to state. Some states balance the reasonable needs of the recipient spouse to the paying spouse’s ability to pay. Other states use a guideline equation. For example, the courts might use up to 40% of the paying spouse’s net income (after child support) and then subtract half of the recipient spouse’s net income. The exact amount is calculated by considering the income of the two spouses, the number of years the parties were married and/or the potential increase in income after the agreement is made.
In the event that one spouse makes considerably more than the other, the courts may rule a waiver of alimony as “unconscionable”, meaning that no sensible person would have agreed to such as waiver unless coerced or under serious stressful conditions.
If you and your spouse want more control over alimony in the event of a divorce, a prenuptial agreement is the best way to go.