Maintenance, also referred to as alimony, is where one spouse (the payor) provides financial support to the other spouse (the payee), or to a third party on behalf of the recipient spouse. For all practical purposes, maintenance, alimony and spousal support are used interchangeably. Maintenance is usually reviewed after deciding upon a plan for dividing the property and debt. Under New York Domestic Relations Law 236 Part B (6), if there is no written agreement, the courts consider the following factors in determining post-divorce maintenance:
- the income and property of the respective parties including marital property distributed pursuant to subdivision five of this part;
- the length of the marriage;
- the age and health of both parties;
- the present and future earning capacity of both parties;
- the need of one party to incur education or training expenses;
- the existence and duration of a pre-marital joint household or a pre-divorce separate household;
- acts by one party against another that have inhibited or continue to inhibit a party's earning capacity or ability to obtain meaningful employment. Such acts include but are not limited to acts of domestic violence as provided in section four hundred fifty-nine-a of the social services law;
- the ability of the party seeking maintenance to become self-supporting and, if applicable, the period of time and training necessary therefor;
- reduced or lost lifetime earning capacity of the party seeking maintenance as a result of having foregone or delayed education, training, employment, or career opportunities during the marriage;
- the presence of children of the marriage in the respective homes of the parties;
- the care of the children or stepchildren, disabled adult children or stepchildren, elderly parents or in-laws that has inhibited or continues to inhibit a party's earning capacity;
- the inability of one party to obtain meaningful employment due to age or absence from the workforce;
- the need to pay for exceptional additional expenses for the child/children, including but not limited to, schooling, day care and medical treatment;
- the tax consequences to each party;
- the equitable distribution of marital property;
- contributions and services of the party seeking maintenance as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party;
- the wasteful dissipation of marital property by either spouse;
- the transfer or encumbrance made in contemplation of a matrimonial action without fair consideration;
- the loss of health insurance benefits upon dissolution of the marriage, and the availability and cost of medical insurance for the parties; and
- any other factor which the court shall expressly find to be just and proper.
Understanding maintenance can be difficult, especially because many factors come into play. When negotiating a matrimonial agreement, it is important to understand relevant law as you consider all of your options in creating your agreement. Although your attorney will be handling the technical requirements for maintenance in drafting your agreement, it can be helpful to have a basic understanding of not only what maintenance is, but how certain considerations may have tax implications.
In addition to your state’s guidelines for maintenance, the IRS has its own requirements for maintenance in order for payments to be tax-deductible. Once again, your lawyer and financial professional will be handling this, but it may save some time and stress if you understand the rules that the IRS has in place. The following are 5 scenarios that may affect whether or not maintenance can be deducted.
- There must be a written court order or separation agreement.
The way your agreement is worded can have tax implications for the future. Maintenance is normally tax deductible from the paying spouse and taxable to the recipient spouse. The Court has authority to make the maintenance payments tax free. The Maintenance terms should be clearly designated in the agreement.
- All payments must be made in cash, check or by money order. It is possible for certain payments made to a third party on behalf of his or her spouse to qualify as spousal support. This must be stated in the agreement and/or the divorce decree.
- You and your former spouse must file separate federal and state income tax returns.
- You and your former spouse must reside in separate households for maintenance payments to be tax-deductible.
- The payments must stop upon payee’s death.
Your separation agreement or judgement should stipulate that the maintenance payments will terminate when the payee dies.
These considerations give you a general idea of some of the guidelines to be followed for maintenance. It is important to consult with your attorney and financial professional for advice and counsel on the criteria for receiving or paying maintenance.