If I Retire Will My Spousal Support Be Reduced?

Leave a comment

The 2018 Amendment to Virginia Code § 20-109

Provides No Assistance in Answering the Question

Long term marriages often result in spousal support awards that continue indefinitely.  Long term marriages also mean that the spouses are closer to retirement age.  Before retiring, the spouse paying support usually wants to know that they can afford to retire, which means that they want to determine before they retire whether they will be required to continue paying spousal support, and if so, how much.  For reasons discussed below, it has been impossible for a family law practitioner to advise a client.  During the 2018 Session, the Virginia General Assembly amended the statute governing modification of spousal support, Virginia Code § 20-109. Unfortunately, the amendment is of no help in answering the question.

The Basics of Modification of Spousal Support

The first question is whether the spousal support award can be modified by the court.  If the spousal support was determined by agreement of the parties, the spousal support award is not modifiable unless the agreement expressly says that it is modifiable.  If the award was made by the court it is modifiable.

To request modification, either party may assert that there has been a material change in circumstances since the date of the award AND that the change in circumstances warrants a change in the ordered amount of support.  A material change that warrants modification of support is one that affects the financial needs of the receiving spouse or that affects the ability of the paying spouse to pay. However, a material change that reduces the ability of the payor spouse to pay support cannot be due to that spouse’s voluntary act. For example, a payor who loses his job because he was insubordinate to his superior cannot use the resulting reduction in income to justify a reduction in his support obligation.

A spouse seeking support or continued support is not required to deplete their assets to qualify for support or to relieve the other spouse of the obligation of support. However, in recent case law, the contrary assertion has been held not true – while the receiving spouse may not be required to exhaust their assets to support themselves, the paying spouse may be required to expend assets (as opposed to earnings or income) to pay spousal support.

Application of the Basics to Retirement of the Paying Spouse

When the basic statutory and case law regarding modification of spousal support has been applied by trial courts to situations where the paying spouse has retired, the result has been substantial obstacles to relief for the retiring spouse. Trial courts have held that the paying spouse has voluntarily retired and therefore refused to even consider whether changes in incomes warranted a change in spousal support. Of courts that have considered modification due to retirement, some have refused to reduce the paying spouse’s obligation, holding that the paying spouse can pay from “other sources.” In other words, the court refused to lower or terminate the support obligation because the payor spouse could make payments from assets rather than from income.

The 2018 Amendment to Va. Code § 20-109

Effective July 1, 2018, Virginia Code section 20-109 provides that “the payor spouse’s attainment of full retirement age shall be considered a material change in circumstances.” The statute defines full retirement age as the age at which the payor spouse is eligible to receive full retirement benefits under the Social Security Act, which differs based on the year in which the payor spouse was born.

The 2018 Amendment also adds new Subsection F which sets forth six factors that the court must consider (in addition to the “normal” factors set forth in Va. Code § 20-107.1) when considering a request for modification of spousal support based on retirement of the payor spouse.

The required considerations are:

  1. Whether retirement was contemplated by the court and specifically considered by the court when the spousal support was awarded;
  2. Whether the retirement is mandatory or voluntary, and the terms and conditions related to such retirement;
  3. Whether the retirement would result in a change in the income of ether the payor or the payee spouse;
  4. The age and health of the parties;
  5. The duration and amount of spousal support already paid; and,
  6. The assets or property interest of each of the parties during the period from the date of the support order and up to the date of the hearing on modification or termination.

The Effect of the Amendment

Only with time will we learn how courts will apply the amendment to spousal support cases.  As with many statutory amendments, there are more questions than answers from the amendment itself.  What is clear is that only retirement at full retirement age is deemed to be a material change in circumstances. What about mandatory retirement prior to full retirement age?  Is that a material change in circumstances?

The court is required to consider whether the retirement, even at full retirement age, is mandatory or voluntary? Can court still refuse to modify spousal support because the reduction of the income of the payor spouse at full retirement age is a voluntary reduction?

What of the required consideration of “the duration and amount of spousal support already paid”? If everything else is equal, is the payor spouse who was divorce 20 years prior to retirement age more likely to obtain a reduction in the amount of spousal support than the payor spouse who was divorce five years prior to retirement? Is there a “lifetime maximum” of spousal support?

Of what import is the last factor listed, the assets and property interest of the parties from the date of the support order to the date of the hearing? The amendment does not change the case law holding that the spouse who wants to continue support cannot be required to use assets to support themselves or that the spouse who has to pay support may be require to use assets to do so. The court is required to consider the assets and property interests from the date of the support order to the hearing, but does not require the court to consider the financial decisions made by the parties for the same time period. What of the payor spouse who is a spendthrift and saves diligently for retirement while the payee spouse is much less frugal and spends above his or her means such that at the final hearing, the payor spouse has substantially more assets than the payee spouse? Will the payor spouse be required to use the assets acquired since the support order was made to continue to pay support to the wasteful payee spouse? What if both parties save and acquire substantial assets during the interim period? The payee spouse cannot be required to use their assets to support themselves but the payor spouse can be required to use assets to pay support.

Conclusion

The 2018 Amendment to Va. Code  § 20-109 was a step in the right direction, but provides no real solution or guidance for practitioners or retiring former spouses. The General Assembly needs to weigh in and either make assets off limits for spousal support purposes except to the extent that they generate income or make expending assets for support a consideration for both former spouses. Otherwise, the playing field remains unlevel when the payor spouse retires, whether it is at full retirement age or earlier, regardless of whether the retirement is mandatory or voluntary.

The Tax Cuts and Jobs Act and Spousal Support: Dividing a Smaller Pie

Leave a comment

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, Public Law 115-97 (“the Act”).  Among the changes to the tax code made by the Act were significant changes to the deductions available to taxpayers. For divorcing taxpayers and those divorcing in the future, a significant change was the repeal of the deduction for payment of spousal support for orders and agreements after December 31, 2018. As discussed below, this is a major sea change for divorcing couples and will result in less money for the now-divided family.

Tax Treatment of Spousal Support Under Current Law

Currently, unless divorcing spouses agree otherwise, alimony or spousal support paid from one spouse to another pursuant to a marital agreement or court order is deductible from the income of the paying spouse and taxable as ordinary income to the receiving spouse. In almost all cases, the payor spouse is in a higher tax bracket than the receiving spouse, so the result of shifting income from one to the other is a reduction in the amount of taxes paid on the amount of the alimony.

An example illustrates the point. Assume that ex-husband pays $10,000 per month in spousal support and is in the 35% tax bracket. Ex-wife makes little earned income and even with the spousal support is in the 24% bracket. If the alimony were taxed as income to ex-husband, the tax on $10,000 would be $3,500 each month. When taxed at ex-wife’s rate, the tax on $10,000 per month is $2,400 per month. The difference is $1,100 per month or $13,200 (this example assumes that the alimony deduction does not reduce the payor’s tax rate. If that happens, then tax effect includes not only the deduction of the spousal support but also the difference in rates for the remainder of the payor spouse’s income).

Where does that money go? It goes to the family in some fashion. Very rarely is it possible for a family that is primarily dependent on one high wage earner to go from one household to two and not have a reduction in the lifestyle for one or both of the post-divorce households. When alimony is deductible, it softens this blow somewhat because, as shown above, by shifting $120,000 of income from the payor spouse to the receiving spouse, an additional $13,200 per year becomes available to the family.

After 2018, The IRS Gets More Money

If the couple in our example above do not divorce until after December 31, 2018, the $13,200 goes to the IRS, effectively reducing the financial pie that can be divided between the parties, whether by agreement or by court order. The payor spouse has to pay the taxes, meaning that less money is available to pay to the receiving spouse in the form of alimony. Who will ultimately suffer the financial burden depends on the parties’ agreement or on the court’s decision. For many divorcing spouses, a couple hundred dollars a month makes a huge difference.

How to Deal with the Change in Negotiation or Trial

Just as the Act results in a sea change on the deductibility of alimony, it will also result in a sea change in how spousal support is negotiated and presented to the trial court in a divorce case. On a frequent basis under the current scheme where spousal support is deductible, counsel for the receiving spouse will present evidence of their client’s need for financial support to maintain the lifestyle established during the marriage, and will then demonstrate (to the other side or to the court) that to actually receive that amount, the needed amount has to be “grossed up” to account for taxes.

Usually, the receiving spouse’s representative will go further and also demonstrate the “savings” to the payor spouse to convince the payor spouse or the court that the impact of paying, to use the example above, $10,000 a month in spousal support is actually less for the payor spouse.  In the case of the example above, the actual cost to the payor spouse is $7,500 since they would have to pay $3,500 in taxes on the $10,000 if they did not pay the alimony. Under this example, the payor spouse pays $7,500 net and the receiving spouse receives $8,600 net.

After December 31, 2018, the representative for the payor spouse will want to convince the other spouse or the court that their client simply cannot afford to pay the requested amount of spousal support because the alimony is not deductible and to pay the requested amount in after tax dollars is simply not possible if the payor is to maintain their other financial obligations.

Going back again to our example, when alimony is deductible, paying $10,000 per month “costs” the payor $7,500 while the receiving spouse receives $8,600. When alimony is no longer deductible, for a payor spouse in the 35% tax bracket to pay $8,600 per month will “cost” the payor $13,231 [$13,231 X .35 = $4,630.85.  $13,231 – 4,630.85 = $8,600.14]. So, for the receiving spouse to obtain the same benefit will cost the paying spouse $3,231 more income each month or $38,772 per year.

These examples ignore state income taxes. If, as many states do, the state income tax begins with federal adjusted gross income, the effect of repealing deductibility of spousal support is even greater.

If possible, couples proceeding through divorce should try to resolve spousal support prior to the end of this year. For agreements and decrees entered prior to December 31, 2018, the deductibility of spousal support will be grandfathered in and remain deductible for the foreseeable future.

Your Social Media Presence and Activity During Divorce

Leave a comment

You thought your divorce was going to be amicable, but things seem to be going in a completely different direction.  You’ve been separated for a while and you’ve been “checking in” on Facebook when you have been out with friends, including someone you’ve been dating.  You’ve also been sending messages back and forth with that person.  Problem?

Social media postings on any platform have been used in all types of litigation – from breach of contract cases to criminal prosecutions.  The most popular platform is Facebook, but users have incriminated themselves and ruined their chances of prevailing in civil cases, including divorce, using every possible social media platform. In the context of divorce, social media activity during three distinct phases can impact the process, the outcome and whether there is ongoing litigation – pre-filing; when the case is pending; and post-divorce.

Pre-Filing

Social media activity during this time period has obvious implications. This activity often provides evidence one spouse uses to file for divorce from the other, or provides the responding spouse with evidence of fault on the part of the filing spouse. We all know people who are social media addicts – anyone who follows them or is connected to them knows way too much about everywhere they go and who they are with. Even if you think your spouse is not privy to your private messages and posts, you must assume that they will see them via friends who will forward posts, share posts, or just talk about them. Social media activity can confirm suspicions or lead to suspicions if someone posts about an activity when they have told their spouse they were doing something different. Social media activity can provide evidence of adultery, income, and inappropriate behaviors that can affect child custody and visitation.

During Divorce Litigation

The potential impact of social media activity depends on the issues that are raised in the divorce litigation. What may be unimportant in one person’s divorce may have a huge impact on someone else’s case. In a typical case, for most of the time while the divorce is pending the spouses are not living together and people mistakenly believe that what they do after separation won’t matter. This is wrong. Some examples are illustrative:

Joe and Sue separated after Joe caught Sue having an affair. His attorney filed suit for divorce and Sue’s attorney denied the affair and asked that Joe be obligated to pay spousal support to Sue. Joe’s attorney told him that he thought he could prove Sue’s adultery and that, in Virginia, if Joe can prove adultery, Sue will not be able to get spousal support (except in limited circumstances). As the case drags on, Joe starts to date Mary, who he met after his separation from Sue.  The relationship becomes serious and Joe takes Mary on a Caribbean cruise.  During the cruise and after returning, both Joe and Mary post pictures on Facebook and message friends about how romantic and wonderful their balcony cabin with king bed was. Now Sue’s attorney is asserting that Joe cannot rely on adultery to prevent Sue from obtaining alimony because of the doctrine of recrimination.

Assume the above scenario is modified so that there was no adultery before the parties separated, but after the parties separated, Sue went on the cruise with Mike and they posted pictures and messages about their romantic cabin. Under the modified scenario, Joe could assert that Sue was not entitled to alimony because of her post-separation adultery.

The potential impacts of social media activity on many aspects of a divorce case, from spousal support, to determination of income for child support, to determination of custody and visitation for minor children, are too numerous to discuss here or for an attorney to address in advising their client on what they can and cannot share on social media. The best advice is that during your divorce case you should stay off social media completely, or, at the very least, assume that everything you post may be seen by your spouse and/or the trial judge.

Post-Divorce

The potential impact of social media activity is less obvious after a divorce is final. In almost all divorces there are aspects, typically alimony or child-related issues, that continue after the divorce is final. Posting about new luxury automobiles or lavish vacations can lead to follow-on litigation to increase (or decrease) spousal support or child support. Sharing about a getaway with your new love when you asked your ex to keep the kids for the weekend because you had to work can result in your ex asking to modify the visitation arrangements. Posting a video of your child doing something funny AND dangerous can result in investigation by child protective services.

Avoiding these potential issues may make your Facebook page more boring than a middle school yearbook, but it may save you lots of money in attorney fees and even more in peace of mind.

What To Do

You’re reading this and thinking to yourself, “Oh no! I’ve been posting all sorts of stuff that could kill my case.” What can you do about it?  The best advice, at least as far as what you have already shared on social media, is to do nothing. Sure, you could delete the objectionable posts and pictures. You could even delete your entire Facebook or social media presence. The problem is, like everything else on the internet, once it is out there, it is out there. You have no idea who has copies of what you posted or has shared what you posted with others. Especially if litigation is pending, your deletions may be spoliation (destruction) of evidence, and can result in sanctions or a court finding against you. Worse still, deleting items and denying that the events or what was shared happened can result in charges of perjury. At least with Facebook, during litigation, a party may require the other party to download their Facebook history and turn it over. The history will show all activity, including activity that was later deleted.

The best advice regarding social media, without consideration whether there is or may be litigation pending, is to recognize that your activity is not private and can be discovered during litigation, whether in the context of divorce or otherwise.   Assume your activity is public for all to see and act accordingly.

Will Marital Fault Affect Spousal Support?

Leave a comment

Virginia statutes regarding divorce provide for “no-fault” divorce based on spouses living separate and apart for the time period set forth in the Va. Code § 20-91 – one year unless they do not have minor children in common and have a written agreement resolving all other issues, in which case six months separation is sufficient. Fault grounds for divorce in Virginia include adultery, desertion, conviction of a felony, cruelty, causing reasonable apprehension of bodily hurt, and desertion.  Regardless of the grounds for divorce, a party may request an award of pendente lite or temporary support prior to the divorce being made final and/or an award of permanent support upon entry of the Final Decree of Divorce. What impact will marital fault have on the Court’s decision regarding temporary spousal support or permanent spousal support?

Temporary Spousal Support

Temporary spousal support may be ordered by a Circuit Court in a divorce action or by a Juvenile and Domestic Relations District Court (“JDR Court”) upon petition of a spouse after the parties separate.  Virginia Code § 16.1-241(L) provides the statutory authority for a JDR Court to order spousal support and also provides that any order entered by the JDR Court is not res judicata (binding) on the circuit court. Since the Circuit Court can, in its final decree provide for permanent alimony, the spousal support ordered by the JDR Court is by definition temporary. Virginia Code § 16.1-278.17:1 provides that for cases where the parties combined gross monthly income is $10,000 or less, the presumptive amount of spousal support shall be determined by the JDR Court by deducting 58% of the payee spouse’s gross monthly income (in cases where the parties have minor children in common) from 28% of the payor’s gross monthly income. When there are no minor children in common, the presumptive amount of alimony is the difference between 30% of the payor’s gross monthly income and 50% of the payee spouse’s gross monthly income. The court may deviate from the presumptive amount “for good cause shown, including any relevant evidence relating to the parties’ current financial circumstances that indicates the presumptive amount is inappropriate.” Va. Code § 16.1-278.17:1(D). Thus, the JDR Court’s award of spousal support is not affected by fault but only by financial evidence.

Similarly, fault is not a factor that should be considered by a Circuit Court in making an award of pendente lite alimony.  The statutory authorization for a Circuit Court to makes a temporary award of spousal support is found in Virginia Code § 20-103.   That statute provides the court with the power to “compel a spouse to pay any sums necessary for the maintenance and support of the petitioning spouse.” Va. Code § 20-103(A). Pendente lite orders “shall have no presumptive effect and shall not be determinative when adjudicating the underlying cause.”  Va. Code § 20-103(E).  The statute does not address or refer to fault, only to the “sums necessary for the maintenance and support of the petitioning spouse.” Accordingly, courts interpreting the statute have held that fault is not a consideration when a court is determining temporary alimony.

Whether in a JDR Court or a Circuit Court, fault is not an appropriate consideration when temporary spousal support is determined.

Effect of Marital Fault on Obtaining an Award of Permanent Spousal Support

Only the Circuit Court has authority to award permanent (meaning not temporary) spousal support pursuant to Virginia Code § 20-107.1.  That statute requires the Circuit Court to consider, when determining whether to award support for a spouse, “the circumstances and factors which contributed to the dissolution of the marriage, specifically including adultery and any other ground for divorce under the provisions of subdivision A (3) or (6) of § 20-91 or § 20-95.”  Subdivision (3) is conviction of a felony subsequent to the marriage and subdivision (6) is cruelty or desertion. The statute treats adultery differently from other fault grounds for divorce.

Whether the divorce is entered on the grounds of adultery or not, “no permanent maintenance and support shall be awarded from any spouse if there exits in such spouse’s favor a ground of divorce under the provisions of subdivision A (1) of § 20-91.”  Code § 20-91(A)(1) is divorce based on adultery.  Although adultery is a bar to obtaining a permanent award of spousal support, the General Assembly also provided a narrow exception to the bar. A divorce court may still make an award of permanent alimony “if the court determines from clear and convincing evidence, that a denial of support and maintenance would constitute a manifest injustice, based upon the respective degrees of fault during the marriage and the relative economic circumstances of the parties.”

Thus, adultery is a bar to spousal support subject to the limited escape clause, and other fault grounds for divorce are to be considered by the Circuit Court in determining whether to award alimony at all.  Once the court has determined to award alimony, does fault bear on the amount of spousal support awarded?

Fault and the Amount of Permanent Spousal Support

Per Virginia Code § 20-107.1(E), the court shall consider the following factors “in determining the nature, amount and duration of an award”:

1. The obligations, needs and financial resources of the parties, including but not limited to income from all pension, profit sharing or retirement plans, of whatever nature;

2. The standard of living established during the marriage;

3. The duration of the marriage;

4. The age and physical and mental condition of the parties and any special circumstances of the family;

5. The extent to which the age, physical or mental condition or special circumstances of any child of the parties would make it appropriate that a party not seek employment outside of the home;

6. The contributions, monetary and nonmonetary, of each party to the well-being of the family;

7. The property interests of the parties, both real and personal, tangible and intangible;

8. The provisions made with regard to the marital property under § 20-107.3;

9. The earning capacity, including the skills, education and training of the parties and the present employment opportunities for persons possessing such earning capacity;

10. The opportunity for, ability of, and the time and costs involved for a party to acquire the appropriate education, training and employment to obtain the skills needed to enhance his or her earning ability;

11. The decisions regarding employment, career, economics, education and parenting arrangements made by the parties during the marriage and their effect on present and future earning potential, including the length of time one or both of the parties have been absent from the job market;

12. The extent to which either party has contributed to the attainment of education, training, career position or profession of the other party; and

13. Such other factors, including the tax consequences to each party and the circumstances and factors that contributed to the dissolution, specifically including any ground for divorce, as are necessary to consider the equities between the parties.

The last factor provides the court with the statutory authority to consider marital fault in determining the amount of spousal support to be paid.  The court shall consider “the circumstances and factors that contributed to the dissolution, specifically including any ground for divorce,” as may be “necessary to consider the equities between the parties. Thus, fault is a consideration for the trial court when determining not only whether to award alimony but also, once the court has determined that it will award alimony, it must consider fault in determining the amount. How marital fault might affect the amount of the awarded spousal support is too complex and fact specific to discuss here, but suffice it to say that every case is different and the amount of spousal support is within the discretion of the trial court.