Skylark Law & Mediation, PC provides this blog about divorce and other family dispute issues in Massachusetts. The authors are all attorney/mediators at Skylark Law & Mediation, PC and our goal is to provide legal information about these issues to help educate the public and other professionals about family law in Massachusetts.
In Massachusetts our alimony statute includes a formula for calculating the maximum general term alimony in a divorce case. However, this formula was created with the intention that alimony was tax-deductible to the payor and taxable income to the recipient. Under §53 general term alimony is capped at the recipient’s “need” or 30-35% of the difference in the parties’ gross incomes. Since the act was passed, the courts have clarified that “need” is a relative term and must reflect the parties' marital lifestyle in addition to other mandatory considerations contained in § 53(a). For a more in depth analysis of the statute and subsequent cases, see our last post: The Alimony Reform Act: Lessons Learned in the Last Six Years.
Since that state law has not been amended by the federal tax law change,
the question remains: should the formula percentages change?
While the alimony law does have provisions allowing for deviation from "from duration and amount limits for general term alimony" and there is a list of deviation grounds which includes "tax considerations applicable to the parties." Some have asked why the burden in this situation should be on a payor to argue deviation grounds, but until the legislature makes a change to the statute or we get appeals court guidance at least we know that there is language in the statute that allows for the consideration of tax consequences.
In reality, no-one actually knows what judges are going to do until they do it (even the judge themselves in many cases). This isn't meant to be insulting, but rather an acknowledgment that they are still human. And none of us know (for sure) what the appeals court or SJC will do with this until the "right" test case is in front of them and they issue a decision. Is the relevant question 30-35% vs. something else? Or is the potentially more useful question to be answered whether the tax impact on the payor or the tax impact on the recipient should be the driving factor in determining the appropriate percentage?
Until we know, here is the humble opinion of the author as to a reasonable practical approach to address these questions:
The obvious purpose of the formula (30-35% of the difference) is to provide a range of likely need, to create a shortcut from actually determining "need" as defined in the statute, which is the alternative option for determining the cap. It's meant to make it easier to settle without having to dig into marital lifestyle, budgets, etc. The change in the tax law didn't change the need of recipients.
It simply lowered what needs to be paid by a payor to meet that need, since the recipient no longer has to pay taxes on the receipt of those funds. Therefore, the new shortcut should be relative only to the tax bracket of the recipient. Of course, the impact of that payment on the payor (from net after-tax income) should still be a limiting factor when it comes to the payor's "ability to pay." So, a sensible approach would be:
Step 1 - New Shortcut: Determine what amount would result in the same net payment as a taxable 30-35% of the difference in incomes to the recipient. For example, in a situation where the payor has gross earned income of $250,000 per year and the recipient has gross earned income of $0, the statutory formula would result in a cap of "need" or $75,000 to $87,500 per year in alimony. Under the old law this taxable income to the recipient would result in approximately $9,800 to $12,550 in federal income tax (assuming no itemizing or other deductions), reducing the available income to 26% to 30% of the difference in income.
These percentages will vary greatly with the amount of earned income that either party has, but the bottom line is that the after-tax net equivalent of 30-35% can be calculated. The inquiry can stop there if both parties feel that that calculation is reasonable and reflective of their respective "need" and "ability to pay." If either party questions this approach, or the resulting amount, then the shortcut was insufficient to reach settlement and you should proceed to step 2.
Step 2 - Define Need: Review the recipient's reasonable need based on their budget, and relative to the marital lifestyle at the time of divorce (as required by the Young case and the statute). If the figure is different than Step 1, but the payor is still not comfortable with this figure then proceed to Step 3.
Step 3 - Define Ability to Pay: Review the payor's reasonable needs based on their budget, and relative to the marital lifestyle at the time of divorce. If the figure is lower than the figure yielded by Step 1 or Step 2, then it is possible that marital lifestyle cannot be maintained by both people and some sacrifice is necessary to balance "need" versus "ability to pay".
When litigating this issue, a payor is going to focus on Step 3 and their "ability to pay", and a recipient is going to focus on Step 2 or try to argue the original formula. The tax law change without any guidance (yet) from the courts means that there is a wider gap between each side's "best" and "worst" case scenarios in an adversarial approach. This means that litigation expenses, the time to litigate, and the uncertainty of litigation will all be increased in these cases, which is all the more reason to try a mediation or a collaborative law approach.
Mediation and Collaborative Law are voluntary processes that give the couple control over their divorce and its terms. Settling outside of court allows a couple to discuss all aspects of their divorce, review different options, and decide what is best for their family, armed with the appropriate financial and legal knowledge. When it comes to unknowns in the law, like how the court will deal with these new alimony questions, couples need to decide whether it's worth their time, money, and energy to be the test case, or whether it's more important to them that they find joint solutions in an efficient and effective process.
We are very excited to announce that on December 10, 2018, Valerie Qian will begin a position in the Circuit Executive's office at the United States Court of Appeals for the First Circuit. While this departure will prevent Valerie from continuing to represent and mediate for Skylark's clients, we want to wish her the best of luck in this new endeavor.
After more than five and a half years, I will be leaving Skylark Law & Mediation, where I have been since the days we were still called Kelsey & Trask and our offices were located in Framingham. I am sad to be leaving the team after so long.
I've learned a lot here from Justin, Melissa, Beth, Julie and Jen and others from the team who have moved on over the years, and will look back with fond memories at the time I've spent here. I'll be moving on to a position in the Circuit Executive's office at the United States Court of Appeals for the First Circuit, and commuting to Boston for work now.
It will be very different but I'm excited for this new adventure and the different ways I hope to grow and serve our community there. Many thanks to Justin and Melissa and everyone else, and I will miss you!
If you have any questions about this transition, please do not hesitate to contact Skylark Law & Mediation, PC or Justin L. Kelsey, Esq. online here or at 508.655.5980 with any questions.
Justin has taught with John at the MCLE Family Mediation Workshop for many years, and Ellen has been a part of past DMTA trainings. Both Ellen and Justin are excited at this opportunity to continue the excellent legacy of DMTA, and carry these trainings into the future.
Does it make a difference for my legal rights if my spouse and I lived together before we got married?
The lawyerly answer, which I know is one most people can’t stand, is “it depends.” The Bortolotti v. Bortolotti case, a 1:28 unpublished decision that came down from the Appeals Court in April 2018, sheds some more light on this situation. The relevant statute, M.G.L. c. 208 §48, provides that the legal length of a marriage may be extended by periods of cohabitation if the parties had an “economic partnership” during these periods of cohabitation. The Bortolotti decision clarifies that “economic partnership” exists both in situations where both parties contribute income to the household, and in situations where one party may be economically dependent on the other. The decision further notes that when a judge exercises her discretion to exclude premarital assets from the marital estate, she should use a valuation of those assets at the time of the marriage.
The Appeals Court’s approach to the definition of “economic partnership” is broader than the lower court’s, and rightly takes a more broadminded approach to what this should mean. The commonsense definition of “partnership” suggests that both parties to a partnership contribute to it. But what qualifies as a “contribution” in a marriage/cohabitation partnership? The lower court seemed to only consider economic contributions in the form of one partner’s contributions of his income to the parties’ expenses during their cohabitation. Because the other partner did not contribute financially during their cohabitation, and appeared to be economically dependent on her male partner, the lower court did not believe there was a partnership.
The Appeals Court’s broader definition of “economic partnership” suggests that contribution to an economic marital partnership may involve more than simply depositing your biweekly paycheck into the joint bank account. While one party may be economically dependent on the other, she may still be considered a “partner” in an “economic partnership” that extends the legal length of the marriage for alimony purposes. The Appeals Court keeps its rationale for this broader definition of “economic partnership” grounded in rules of statutory interpretation and in case law, but the wider implications of this definition are clear and, I think, only right. Here in April 2018, we should be beyond the point where we believe that a stay-at-home wife (or husband) who is not bringing home the bacon is not contributing financially to the economic partnership of a marriage simply because she (or he) is only frying it.
*Valerie Qianhas been an Associate at Skylark Law & Mediation, PC since February 2013. Valerie's practice includes family law & divorce representation, collaborative law and mediation, and juvenile representation.
As we have previously covered here, The Tax Cuts & Jobs Act of 2017 Includes a Divorce “Penalty” for divorces that take place after December 31, 2018 if they involve alimony. Prior to this act, and up until December 31, 2018, alimony was tax deductible to the payor and taxable income to the recipient, which allowed for a shifting of taxable income to a lower tax bracket. If an agreement is entered prior to the end of 2018, and this benefit is preserved, then it continues into future years, even if the amount is later modified. This has led many couples, already in the divorce process, to consider whether they want to work on finalizing their case prior to the end of 2018 to preserve this option.
Because some states, like Massachusetts, have waiting periods for finalizing a divorce, this law change raised a question:
Does the deadline of December 31, 2018 apply to the divorce being finalized, or just having a written agreement completed?
The answer to this question in Massachusetts, which has a 90-120 day waiting period for the finalization of a divorce after the Judgment of Divorce Nisi, could mean the difference between having to have an agreement done in August rather than December. For more information about the timing of the divorce process in Massachusetts read our post: How to be Divorced by the End of the Year.
"The key for parties getting divorced in 2018 who want alimony to be deductible to the payer and taxable to the recipient is to have a written, signed, alimony agreement in place by December 31, 2018."
They note that the couple does not have to actually be legally separated or divorced for the alimony to be deductible as long as there is a "written separation agreement" with clear statements for support that otherwise meet the requirements for deductible alimony. To read their entire rationale for this conclusion, complete with tax court citations, read their full article here: What Constitutes an Alimony Agreement?