What should you know about alimony?

There is often confusion about what alimony is, about when and in what amount it might be ordered, about how long alimony might be payable, and whether or not it’s modifiable. As you can imagine, given the number of possibilities, an answer to some of these questions can be pretty complicated.

Let’s start with the obvious, though. Whether or not alimony (spousal support) will be ordered by a court is entirely dependent on the specific facts of each case.

 

What does the judge look at when deciding whether to award alimony, how much and for how long?

 

In Michigan, there are several factors that the judge will consider when deciding if an alimony award. These factors are similar to those used by judges in states other than Michigan. Among the factors a court may consider are these:

 

(1) the past relations and conduct of the parties;

(2) the length of the marriage;

(3) the abilities of the parties to work;

(4) the source and amount of property awarded to the parties;

(5) the parties' ages;

(6) the abilities of the parties to pay alimony;

(7) the present situation of the parties;

(8) the needs of the parties;

(9) the parties' health;

(10) the prior standard of living of the parties and whether either is responsible for the support of others;

(11) contributions of the parties to the joint estate;

(12) a party's fault in causing the divorce;

(13) the effect of cohabitation on a party's financial status; and (14) general principles of equity

 

What else should you know about alimony?

 

If the alimony is traditional spousal support, it is taxable to the recipient and tax deductible to the payor. Usually, alimony terminates upon remarriage or the death of the recipient. It can be, but is not always terminated upon the death of the payor, depending upon the parties’ divorce settlement agreement.

 

Is an alimony award modifiable?

 

Traditional alimony is modifiable in the event of a change in circumstances unless the parties agree otherwise in their divorce settlement agreement and there are clear waivers of the right to seek modification in their agreement.

 

When is “alimony” not really spousal support?

Sometimes parties use some creative income shifting in the form of something call “Section 71 spousal support payments.” This is a very complicated topic, and I won’t go into detail in this article. Basically, though, this is a way that parties might structure what is really a property settlement. The payments are spread out over a term of years. Because the payments are made by the party whose income tax bracket is much higher than the recipient’s income tax bracket, there can be advantages to both parties by structuring the payments in this form. Typically the advantage to the payor is the opportunity to pay the settlement over a term of years in “after-tax” dollars. Often, in exchange, the property settlement paid to the recipient is more generous than it might have been. You’ll need the advice of a lawyer and a tax accountant in order to deal with this type of payments.

 

What is “alimony is gross?”

 

Alimony in gross is not really spousal support at all. It’s a term that has been used, and continues to be used for what is really a property settlement—one paid out in installments over a period of time. Alimony in gross is not tax deductible to the payor and is not taxable to the recipient. Alimony in gross is not modifiable.

 

There is a potential for the alimony in gross to be misconstrued as taxable income where it is described under a label of "spousal support." The Michigan Court of Appeals has clearly explained the concept of alimony in gross:  

"Recently, this Court has explained that the term "alimony in gross" is misleading inasmuch as it is "not really alimony intended for the maintenance of a spouse, but rather is in the nature of a division of property." Staple v Staple, 241 Mich App 562, 566 (2000).

Hence, alimony in gross is considered final and exempt from modification under MCL 552.28; MSA 25.106, even though the recipient spouse dies or remarries before all the payments are made. Id.

In Zerenner v Zerenner, Docket No. 219301 (Mich.App. 02/02/2001), the trial court expressly denominated the award as "alimony in gross" or "spousal support in gross." But the court subsequently added contingency and tax provisions. These made the award look like traditional spousal support. The IRS would have interpreted the award as taxable to the recipient and tax deductible to the payor. That would have unfairly reduced the property settlement that was intended to be awarded.

The Court of Appeals said that the terms in the judgment were “inconsistent with a division of property in the marital estate. Because an ‘alimony award goes hand in glove with the property distribution,’ the court of appeals remanded this issue to the trial court for reconsideration in conjunction with its re-evaluation of an equitable division of property.”

You can read Zerenner v Zerenner here.

Do you need help with a divorce or spousal support case? Find a Michigan Family Lawyer near you.

Comments

[Jeanne M Hannah]

"Alimony in gross" is usually not taxable income but rather is a property settlement paid in installments. Perhaps the retirement was already in pay status, however, or for some other reason could not be paid directly by the administrator. You'll need to look at the exact wording of the judgment. If the judgment states that this is taxable income to you and tax deductible to your former spouse, then it is taxable.

[Fred Lawson]

I am receiving alimony in gross as a split of retirement. It was called this because there was no provision to continue payment after the death of the spouse. Is this income subject to Michigan income tax. Federal taxes I do pay and I am retired as well.