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Maintenance, Alimony or Spousal Support

WHAT IS "MAINTENANCE"?

Maintenance is "spousal support" paid by one spouse to another (we used to call it "alimony").

Kentucky Revised Statute (KRS) 403.200 says:

(1) [The Court] may grant a maintenance order for either spouse only if it finds that the spouse seeking maintenance:

(a) Lacks sufficient property, including marital property apportioned to him [or her], to provide for his [or her] reasonable needs; and

(b) Is unable to support himself [or herself] through appropriate employment or is the custodian of a child whose condition or circumstances make it appropriate that the custodian not be required to seek employment outside the home.

(2) The maintenance order shall be in such amounts and for such periods of time as the court deems just, and after considering all relevant factors including:

(a) The financial resources of the party seeking maintenance, including marital property apportioned to him [or her], and his [or her] ability to meet his  [or her] needs independently, including the extent to which a provision for support of a child living with the party includes a sum for that party as custodian;

(b) The time necessary to acquire sufficient education or training to enable the party seeking maintenance to find appropriate employment;

(c) The standard of living established during the marriage;

(d) The duration of the marriage;

(e) The age, and the physical and emotional condition of the spouse seeking maintenance; and

(f) The ability of the spouse from whom maintenance is sought to meet his needs while meeting those of the spouse seeking maintenance.

If your situation meets the statutory requirements of KRS 403.200 above (disparity of income, inability to meet one's basic needs, length of marriage, the employability of the disadvantaged spouse and the financial resources of the party from whom maintenance is sought, etc.), please talk to your attorney about whether you have a viable claim for spousal support or potential defenses to such a claim by your spouse.

Get out your checkbook register, your tax returns and your credit card statements!  Your attorney is going to need a LOT of financial documentation to make or defend a maintenance claim in your divorce.

MAINTENANCE AND THE NEW U.S. TAX LAW

The Tax Cuts and Jobs Act of 2017 (TCJA) enacted on December 22, 2017 represents dramatic changes to tax regulations which affect how divorces are settled.

For many years, one enticement to settling a high-net-worth divorce case with significant disparity in the two parties' respective incomes was the fact that the payment of maintenance (alimony) was deductible for the paying party.  On the other hand, these maintenance payments were regarded by the IRS and the State as taxable income for the receiving party.  THAT IS NO LONGER THE CASE as of JANUARY 1, 2019 under the TCJA.

2019 is a Pivotal Year for Alimony!

In Kentucky, in most cases, maintenance paid under marital settlement agreements executed in 2018 will continue to be treated by the IRS and the State as deductible for the payor and as taxable income to the recipient.

If the parties have a divorce decree or legal separation decree finalized before January 1, 2019 and they legally modify that pre-2019 decree, these new rules will not apply unless the modification expressly provides that the TCJA applies.

What's the Bottom Line?

If the Court officially enters a decree of divorce or legal separation before January 1, 2019, the parties have the right to agree that maintenance paid to the other spouse shall be tax deductible to the paying party and will be declared as taxable income by the receiving party.

What's the Up Side?

If divorcing couples delay until after January 1, 2019, the party receiving maintenance or alimony will not have to pay income taxes on the amount received because it will not be considered taxable income.

Further, these 2019 changes to how maintenance income is treated as far as taxability may substantially decrease the receiving party's taxable income to the point of making them eligible for new tax credits such as the credit for child and dependent care expenses, education credits and the Earned Income Credit.  Talk to your tax preparer and your attorney about how these changes will affect your financial situation.

And the Down Side?

After January 1, 2019, divorcing parties and their counsel are going to have spend a good deal more time calculating and negotiating maintenance (alimony) payments.  Without the previous tax deduction to the paying party, future maintenance agreements will have to take into consideration the fact that the paying party will no longer have a tax deduction and that the receiving party will no longer have to declare those maintenance payments as taxable income.  In all likelihood, newly-negotiated maintenance amounts will be less than they would have been in 2018.

The new tax law is also going to impact your decision about whether or not you want to keep the former marital residence.  These changes may have big impact decision making by mortgage companies with respect to refinancing real estate loans, who will claim the mortgage interest deduction for current and future years, the future inability to deduct interest paid on home equity loans, etc.  There's a lot to think about when making these important decisions.

Any Predictions for How Settlements Will Change in the Future?

 In divorces for high-income parties, because of the loss of the deduction for paying maintenance, some experts suggest divorcing parties focus on lump-sum settlements instead of maintenance paid out over a period of time.  Is it advantageous for the parties to literally split the marital assets (liquidating them, if necessary) in order to come away without an on-going obligation to pay spousal support over the coming years?  Only time will tell if this becomes a new trend in settlement negotiations.

Need More information on the TCJA?
Family Lawyer Magazine has published a number of detailed articles about the impact of the new tax laws on divorce cases.  Check them out at www.FamilyLawyerMagazine.com/tax-issues.

Be sure to talk to your attorney in detail about how the Tax Cuts and Jobs Act of 2017 will impact your divorce settlement and your post-divorce financial picture.

FAULT

Though this is a "no-fault" state, Kentucky has a confusing and important exception to the general concept of "no fault" in dissolution. If you are seeking maintenance, your fault (i.e., adultery, drunkenness, squandering marital assets or other egregious misconduct) may well be used against you. However, only the fault of the party seeking maintenance will be considered. The fault of the party against whom maintenance is sought, on the other hand, will generally not be considered, except in situations of dissipation of marital assets.

Your "fault" will not be considered in determining whether or not you are entitled to maintenance, but it could result in a substantial reduction of your award.

Be very careful and seek competent legal counsel if this troublesome matter concerns you.

IMPORTANT REASONS TO DEMAND MAINTENANCE

Disparity of income and length of marriage which requires rehabilitation money to the disadvantaged spouse.

  • Special circumstances during the marriage requires maintenance.
  • Physical, mental or emotional disabilities which requires maintenance.

A SPOUSE'S SPECIAL NEEDS

All of these special needs are expensive and many can be included in the calculation of maintenance:

  • Do you have a serious medical condition which require on-going medical treatment?
  • Are you learning disabled?
  • Are you disabled in any other way?
  • Are you receiving therapy, counseling or psychological care?
  • Are you continuing your education?
  • Are you a displaced homemaker?
  • Will you require vocational rehabilitation before you can enter today's marketplace?

It is possible that your attorney will need to obtain a copy of your medical records from your doctor, psychologist, therapist or other provider to prove your claim for maintenance.  These records may also be requested by opposing counsel to disprove a spousal support claim.

DIFFERENT TYPES OF MAINTENANCE

There are several kinds of maintenance which the courts may award to a disadvantaged spouse (usually the wife).

Temporary Maintenance
Rehabilitative Maintenance
Permanent Maintenance
Open-Ended v. Closed-Ended Maintenance

Temporary Maintenance

Temporary maintenance, or "pendente lite" maintenance, as the court calls it, is money paid while your case is pending. You and your spouse can decide how much that will be, or, if no agreement can be met, the court will decide at a hearing. By definition, this type of maintenance ends when the divorce becomes final or sooner if so ordered by the Court.

It is important that your list of monthly living expenses be as complete as possible at your temporary maintenance hearing. During your trial, the court will use that list of expenses, among other factors, in determining whether permanent or rehabilitative maintenance is appropriate.

It is difficult to convince the court that your permanent expenses are significantly different (either less or greater) than those you listed for your temporary maintenance hearing.

Rehabilitative Maintenance

Rehabilitative maintenance is money paid by one spouse to the other, usually in a relatively short-term marriage. This is paid with the specific purpose to help the financially disadvantaged spouse get the training necessary to support himself or herself. It is usually paid for a short period of time, generally a few years and usually not more than five years.

Rehabilitative maintenance is often used to finish a college degree or gain advanced training in order to assist the disadvantaged spouse in becoming self-sufficient.

Permanent Maintenance

Permanent maintenance is just what it sounds like. It is maintenance paid by one spouse to the other for life. In this day and age, it is the exception rather than the rule.

Most lawyers agree that they rarely see permanent maintenance paid in a marriage of fewer than ten years unless some medical problem exists. Length of marriage, age and relative earning capacities are critical factors in analyzing permanent maintenance claims.

Open-Ended versus Closed-Ended Maintenance

One dimension to maintenance is whether it is open- or closed-ended.

Open-ended maintenance can be modified by the court. A change in circumstances of either party can alter the original maintenance decision. However, the change usually must be more than just a temporary one.

Close-ended maintenance, on the other hand, is a maintenance obligation that is not modifiable. Even if the sum is paid over a series of years, its amount and length of it is fixed. The obligation to pay closed-ended maintenance does not end until the final payment is received.

Lump-Sum Maintenance

An alternative to making/receiving monthly or periodic maintenance payments is to instead do a lump-sum settlement or "buyout".  The Tax Cuts and Jobs Act of 2017 (TCJA) discussed in detail above may cause a seismic change in how we structure future divorce settlements.

Under the TCJA, after January 1, 2019, the payment of periodic maintenance will no longer be deductible to the paying party and the receipt of same will no longer be taxable income for the receiving party.  A lot of the advantages of making monthly spousal support payments are being eliminated by the TCJA.

There may be significant tax advantages to divorcing parties to adopt a new approach . . . "Let's just divide everything and use our assets to provide for the needs of the disadvantaged spouse."

Lump sum maintenance is paid in a single transaction rather than through periodic payments made over the course of a period of time. This can be accomplished through the writing of a check to the other party at the time of settlement or through the shifting of one's interest in an asset, such as the former marital residence, to the other party in lieu of future maintenance payments. In other words, one spouse surrenders his or her interest in one or more assets to the other spouse in exchange for being released from any future maintenance obligation.

Talk to your attorney about whether a lump-sum settlement package is to your advantage, especially after January 1, 2019 (see TCJA discussion above).


If you are going to get a divorce, you probably have one or more of these questions on your mind:

  • Will I have to pay maintenance?  If so, how much and for how long?

  • Will I receive maintenance?  If so, how much and for how long?

  • What are the options to paying/receiving monthly maintenance?

  • What are the advantages of each option?

We'd be happy to talk to you about the facts of your case and our initial thinking on the answers to these important questions.