Spousal Maintenance Tax

In a Colorado divorce or legal separation, spousal maintenance, often referred to as alimony, may be an important consideration. Spousal maintenance can provide financial security and the opportunity for a fresh start to a receiving spouse.

There have been some relatively recent changes in taxation of spousal maintenance. Whereas maintenance in the past was deductible to the payor and taxable to the payee, it is now taxable to the payor. Colorado has new spousal support advisory guidelines that do address the tax consequences of the change.

Spousal maintenance is intended to assist a lower-resourced spouse financially; usually temporarily, though sometimes long-term. Although Colorado has advisory spousal maintenance guidelines, a judge has wide discretion when it comes to an award of spousal maintenance. A Colorado divorce court will examine a number of factors when making a spousal support award to include the parties’ standard of living before the marriage and the higher-earning spouse’s ability to pay spousal maintenance, among others listed below. The trend is towards “rehabilitative” maintenance designed to allow a receiving spouse to transition towards the ability to support themselves. Though maintenance may be much longer term in long-term marriages.

Maintenance in Colorado ends upon the death of either party or the remarriage of the spouse receiving alimony, unless the parties agree otherwise. Life insurance and/or disability insurance may be enacted to provide supplemental protection in the event of the death or incapacity of the payor. These supplemental protective measures also apply to child support.

Spousal maintenance award factors generally include:

• The financial resources of the party seeking maintenance, including marital property awarded to the party, and the party’s ability to meet his or her needs independently
• The time necessary to acquire sufficient education or training to enable securing appropriate employment and the receiving party’s future earning capacity
• The standard of living established during the marriage
• The length of the marriage
• The age and physical and emotional condition of the spouse seeking maintenance; and
• The ability of the payor to meet his or her own needs.

Because the amount and duration of spousal maintenance is discretionary, determining the amount and duration can be a point of contention between the parties, particularly in high net worth cases or in lengthy marriages.

Sometimes it is necessary to employ experts for complicated spousal maintenance matters. For example, in cases where the receiving spouse’s ability to earn income is unclear, such as when the spouse has not been employed outside of the home during the marriage, a vocational assessment may be employed to determine potential income. High net worth cases may require an expert opinion on the sufficiency of proposed spousal maintenance, assets and retirement distributions. Additionally, business valuation experts may be necessary to determine a self-employed spouse’s income or potential income.

You can always consider mediation as a cost-effective option to resolve spousal maintenance issues. Call a Colorado family law attorney and mediator for an assessment of your rights and obligations for spousal maintenance.