spousal support-maintenance-p pshow 2015
TRANSCRIPT
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Maintenance
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State law A payment, other than equitable distribution
or child support, to a former spouseEnds upon death of former spouseMay ends upon remarriage and/or
cohabitation depending on agreementFederal tax law
Different requirements than under state lawImportant because of tax consequences
PURPOSEThe purpose of the new legislation is to
provide advisory guidelines for all parties, to promote settlements by providing such guidelines, and to, at a a minimum, provide a starting point for everyone in the case.
Colorado Maintenance Law (C.R.S. 14-110-114)
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Spousal Support May Be Awarded ONLY IF:Lacks sufficient property to provide for
reasonable needs, ANDIs unable to support self through appropriate
employment, OR Is custodian of child whose condition or
circumstances prevent employment outside of home
Definitions
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“Reasonable Needs” – depends on particular facts and circumstances of parties marriage.
“Appropriate Employment”- depends on parties economic circumstances and reasonable expectations established during the marriage.
Maintenance Formula(C.R.S. 14-110-114(2))
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Calculation (40% of higher earners gross
income –50% of lower earners gross
income)However, the recipient cannot receive
more than 40% of the combined income of the parties when considering their income + the maintenance amount.
Courts can then adjust he amount after considering the factors below.
Statutory Maintenance Factors Page 1
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1. Financial resources of both parties including any actual or potential income from separate or marital property, or any other source, and the ability of each spouse to meet needs independently;
2. Length of the marriage;3. Age, physical and emotional health of parties;4. Standard of living during the marriage;5. Earning capacities, educational levels, vocational
skills and employability; Parental responsibilities for children;2. Time and expense to acquire education and
training to enable party to find appropriate employment;
Maintenance Factors – Page 2
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8. Tax Effects;
9. Present Circumstances are controlling rather than historical
10. However historical may be consider to impute income
11. Duration of Maintenance Award1. Continuing or for definite period of time2. Incremental reductions ok if basis3. Expectation of retirement benefits ok to reduce 4. Improper speculation about future NOT allowed
10. Any other factors which the court may deem relevant
The Practical Problems In Determining Maintenance
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No strict formula approach like child support.“Established lifestyle during the marriage” is
rarely considered as both parties lifestyle usually change after separation.
The law grants judges great discretion – rarely overturned on appeal
Maintenance Issues
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Rehabilitative v. Reimbursement
RetirementCohabitation / RemarriageChanges CircumstancesTaxability
“Income” defined
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From every source (Same as Child Support)Salaries, wages, tips (all), commissions, indep
contractor payments, bonuses, dividends, severance, pensions, royalties, rents, interest, trust income, annuities, capital gains, moneys from self employment for personal use, social security, workers comp, unemployment, disability, PI case, monetary gifts, prizes, ptsp distributions, reimbursed expenses from work if significant and reduce personal living expenses, alimony received, overtime if required by employer
Self Employment – Income after “ordinary business expenses” – must be real business expense
Lots of Rules and tests here – but no clear line to follow
Subtract maintenance or support paid to prior marriage or children if through court order.
Not Income
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Child Support ReceivedMeans tested assistance – SSI, food
stamps, Colorado Work ProgramsIncome from additional jobs from 40+ week
employment
Duration of Award
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For marriage of at least 3 years and up to 12 years there is a table based upon of % of months of the marriage which determines the duration. After 12 years, the award is generally for 50% of the total months of marriage, subject to modification due to change in circumstances including retirement by the paying party.
Cohabitation
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Depends on terms of agreementRemarriage ends permanent and
limited duration alimonyCohabitation not sufficient by itself to
reduce Depends on facts
How close to marriageHow much support provided
Tax Considerations
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Alimony is deductible from income for the paying spouse and taxable to receiving spouse
Requirements areWritten divorce or separation instrumentSpouses cannot live together after divorceCash (or cash equivalents)Marriage relationshipMust file separate tax returnsMust terminate at deathMust not be child support
May be deemed child support if terminates or reduces as a result of a child contingencye.g., reduction of alimony on child’s 18th birthday
Review by tax professional may be warranted
Alimony Recapture–IRC 71(f)
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Intended to prevent front loading of maintenance OR conversion of property settlement payments into deductible alimony.
If Alimony decreases or terminates during first three calendar years, some recapture (loss of deduction) – talk to accountant.