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Spousal Support — Some Virginia Basics

Monday, April, 21, 2014

In prior articles, we’ve talked about “Equitable Distribution” of “Marital Property” in Virginia (see “Equitable Distribution--What’s ‘Marital’?” and “Equitable Distribution--What’s ‘Equitable’?”) and an overview of Child Support (see “Child Support--Virginia Basics”). In Virginia, there is a general goal of getting adults to a point that they can be financially independent of each other after a divorce. But in many cases, one divorcing partner may not have the resources either in the bank from the property distribution or from child support to live financially independent. Often “spousal support” (or perhaps less tastefully described by many as “alimony”) is used to fill in the gap.

Before discussing the amount of spousal support, you’ll need to figure out what the income-expense “gap” looks like. So to start, you’ll need to make a reasonable estimate of your monthly expenses after you are living in two separate locations. You’ll also want to make a reasonable estimate of your monthly income after taxes. If this difference produces a monthly deficit, you may have a good starting point for discussing how much spousal support may be needed.

Having this calculation for the one who may be requesting support is vital. But perhaps less obvious is the need for a similar calculation for the partner who may be paying support. The partner paying the support (the “payor”) has to have sufficient resources to meet his or her own needs in addition to paying whatever support is requested. For a proposed amount of spousal support to work, it has to be affordable.

In Virginia, there are no formulas for determining the amount of spousal support to be paid or how long it will be paid. In a litigation setting, the court is required to consider the factors contained in Virginia Code § 20-107.1. The factors are largely subjective so the results can vary based on which courtroom you happen to be in. In a future article, we’ll talk about how two formulas sometimes are misused to dictate the amount and timing of support.

Fortunately, in mediation setting, the couple determines whether and how much spousal support will be needed depending on their needs and resources. A conversation about spousal support should always contain at least these topics:

  1. How much support to start.
  2. Under what circumstances will support change such as increases or decreases in income of one of the partners.
  3. Under what circumstances will support end.
  4. How long, if at all, will a court retain jurisdiction to change any of the above answers.

For most couples, support ends when the recipient remarries. Also, a Virginia statute can come into play that essentially provides that unless the parties agree otherwise, “cohabitation for 12 months or more” is considered comparable to remarriage. But these are not always the rule, especially in a mediated settlement.

What about income taxes and spousal support? Generally, spousal support is deductible for the person paying the support and is taxable income to the recipient. This has two important implications, especially for the recipient. First, the budgeting process is generally thinking about available cash after taxes are withheld. So the actual amount of spousal support needed to fill the income-expense gap will need to be enough to not only fill the gap, but to also pay the taxes resulting from the receipt of the spousal support.

Second, most recipients of spousal support will need to pay quarterly estimated taxes to the federal government and to the state. Without paying those taxes, you’re likely to owe interest and penalties for underpaying your taxes throughout the year. Even more critical is that, unless you plan for the taxes properly, you may allow yourself to spend all your support money and be surprised when you have an “unexpected” tax bill around April 15.

Spousal support does not have to be taxable to the recipient if it’s not deductible for the one paying. But generally, the deduction is worth more to the payor than the tax cost for the recipient, so deductible/taxable spousal support payments under many circumstances can actually increase the amount of available cash for the partners. But this requires careful planning and there are several “tax gotchas” that must be avoided.

Because of the uncertainty of the future and the lack of formulas, spousal support is often a very difficult conversation. This article has only touched on some basics. Perhaps it raises more questions than it answers. We’ll try to get lots of those questions answered in future articles. Let us know what topics are of most concern and perhaps we can address them first.

As we always remind you, it’s VERY important that you don’t think of Resolution Point’s articles as “legal advice”. Our goal is to get you familiar with some of the ideas with very broad strokes. Please consult an attorney to determine how any of this may affect your actual situation.

Daniel R. Burk, President

Resolution Point LLC

(703) 668-0344