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Maintenance
(sometimes called alimony or spousal support) is a payment made by one spouse to another.
There are no hard and fast rules on when maintenance should be paid, how
much or for how long. It is separate from child support. While
maintenance and property division are two separate issues, in reality
they can, and often are, linked, particularly in cases where there are
sufficient assets that it is deemed that maintenance is not needed.
In Colorado, there
are some legislative guidelines on maintenance in Section 14-10-114 of
the Colorado Revised Statutes. The factors to be included in a decision
about maintenance include:
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The financial
resources of the party seeking maintenance, including marital
property apportioned to such party, and the party's ability to meet
his or her needs independently, including the extent to which there
is a
provision for child support;
-
The time
necessary to acquire sufficient education or training to enable the
party seeking maintenance to find appropriate employment and that
party's future earning capacity;
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The standard of
living established during the marriage;
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The duration of
the marriage;
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The age and the
physical and emotional condition of the spouse seeking maintenance;
and
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The ability
of
the spouse from whom maintenance is sought to meet his or her needs
while meeting those of the spouse seeking maintenance.
Temporary
maintenance is sometimes awarded or agreed to for a period of time
before the final decree. This is necessary when one of the parties does
not have sufficient income or means to support him/herself. If the
parties’ combined income is greater than $75,000, then the Court is
guided to use the above factors when considering a temporary maintenance
order. If the combined incomes are less than $75,000, then a guideline
formula used for establishing temporary maintenance is:
40%
higher income party’s monthly adjusted income
less 50% of the lower income party’s monthly adjusted income.
Incomes are
adjusted for maintenance and child support already actually being paid
pursuant to a court order.
This formula is
not
to be used by the Court for permanent order maintenance awards.
Maintenance can be
modifiable or non modifiable. If modifiable, you, or the court, can
agree to change the level of maintenance. If non modifiable, then it is
a contract that cannot be changed by the court.
Sometimes parties
will agree to a maintenance amount and then determine the net present
value, taking into account the tax effect, so that a lump sum payment
can be made rather than payments over time.
Taxation Issues
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Maintenance is taxable to the person receiving
maintenance and is a reduction of taxable gross income to the person
paying maintenance. To claim payments as maintenance for tax
purposes, there must be a divorce or separation agreement between
the parties or a court order, the agreement does not specify the
payments as not alimony, the parties are not filing a joint income
tax return, the payments is in cash, there is no liability to make a
payment after the death of the recipient spouse, the payment is not
considered as child support, and the parties are not living in the
same household. For more information see
IRS Publication 504.
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Maintenance payments cannot be used as a substitution
for a property settlement. To counter this, the IRS created the
recapture rule, which states that during the first three years, if
maintenance reduces by more than $15,000 per year, then the excess
tax that should have been paid can be “recaptured” by the IRS as
income tax.
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Maintenance
payments are also not supposed to be used as a substitute for child
support, which is not taxable to the recipient. If maintenance
payments are scheduled to stop or reduce at a time that is linked to
a child related event, such as graduation from high school,
graduation from college, or emancipation, then the IRS can reclaim
from the parties the tax that was not paid by the payor as a result
of the payments being labeled as maintenance.
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