Maintenance is what used to be called alimony or spousal support. This is a payment between spouses that is separate and distinct from child support.
In determining if maintenance is appropriate the court will evaluate the parties' needs and earning capacities. The court will look to the standard of living that was enjoyed by the parties during the marriage. The court will also evaluate the fairness a maintenance award to ensure a fair and equitable financial agreement.
The court must consider all of the following factors in determining if a maintenance order is appropriate:
- The length of the marriage.
- The age and physical and emotional health of the parties.
- The educational level of each part at the time of marriage and at the time the action is commenced.
- The earning capacity of the party seeking maintenance.
- Feasibility that a party seeking maintenance can become self-supporting at standard of living reasonably compared to standard enjoyed during marriage.
- Tax consequences.
- Mutual agreements made before or during marriage.
- Contribution of one party to education, training, or increased earning power of other.
- Other factors as the court deems relevant in individual case.
Duration of Maintenance, if ordered
If the court finds that an award of maintenance is appropriate, the court will then determine the term or duration of the maintenance award. A maintenance obligation can be for a limited or indefinite period of time. An indefinite term is until the remarriage of the party receiving maintenance or until the death of a party. In limited term maintenance orders, the court will set the duration of time based on the length of time necessary for recipient spouse to become self-supporting at appropriate standard of living.
Tax Consequences of Maintenance
The tax consequences will be considered when the court orders maintenance. Generally, maintenance payments are considered taxable income to the recipient and tax deductible to the payer. However, the court may order that payments are not taxable to the recipient and not deductible to the payer. There may be further implications depending on how the maintenance payments are structured. In some instances, a three-year recapture rule may apply if the maintenance payments are not carefully structured.
Modification of Maintenance Orders
In some instances, a maintenance order can be modified. The party seeking to modify maintenance must file a motion with the court. The party seeking change must show that there has been a substantial change of financial circumstances warranting modification since the entry of the last order.
Section 71 Payments
Section 71 payments can be used as an alternative to maintenance payments. Section 71 refers to the Internal Revenue Service tax code that outlines the requirements and tax effects of such payments. Section 71 payments are guaranteed payments from one party to the other. These payments are guaranteed because Section 71 payments are not modifiable in amount or duration by the parties or the court.
Section 71 payments are included in the taxable income of the recipient and are deductible to the payer.
Much like maintenance payments, Section 71 payments will terminate upon the death of either party. However, the payer may be ordered to carry a life insurance policy with the recipient as the beneficiary to cover any unpaid amounts upon their death. Generally, Section 71 payments do not terminate upon the remarriage of the recipient.
In some cases, family support is ordered in lieu of child support and maintenance. With the assistance of an experienced family law attorney, a family support order may have favorable tax treatment.
Neither maintenance payments nor Section 71 payments are dischargeable in bankruptcy.
If you have questions regarding maintenance or modifying a maintenance order, contact one of the experienced family law attorneys at Lawton & Cates.