As a Howard County divorce attorney, guys often tell me that they do not want to pay alimony. I get the whole “I don’t want to pay alimony because she will never want to work” thing. But that’s really not what alimony is about anymore. Alimony can be a divorcing husband’s best friend. How, you say? Throughout this guide, I will explain the father’s rights and four primary streams of payments that occur during and after a divorce and how they overlap:
Let’s take a look at each in greater detail, and you will begin to see that when you are creating a strategy of a divorce settlement (usually through a Separation and Property Settlement Agreement), all of these are important to discuss both individually and collectively to help you make your best deal.
Alimony In Howard County
Alimony can be for a defined period of time. It can be made non-modifiable, so that it is what it is. It can be creatively structured in multiple phases for different amounts for different durations of time. In other words, through an agreement, it is creative and flexible.
However, if you go to Court, it will either be defined for a certain period of time (called rehabilitative alimony), or it will be indefinite (which is not the same as permanent, something the Court cannot order). The biggest drawback to alimony ordered by a court is that it is ALWAYS modifiable, and therefore, you never get to breathe that sigh of relief over an end date (unless the recipient remarries, in which case the alimony goes away forever).
Financially, alimony is taxable to the recipient, and alimony is tax deductible to the one paying it. By itself, that might not mean too much to you. But consider this. Paying alimony increases her taxable income and decreases your taxable income–for child support purposes. So, paying alimony reduces your child support. It’s not dollar for dollar, but it’s a significant savings.
As I will discuss throughout this guide, you can creatively craft a situation where your taxable income can be effectively reduced to keep more dollars in your pocket at the end of the year.
Child Support In Howard County
Most parents universally agree that the method of calculating child support is mysterious and just plain wrong. The recipient usually believes it is not enough money, and the parent paying child support almost universally believes he or she is paying too much child support.
Are either of them right? Are either of them wrong? The problem is that it does not really matter, because the Maryland Legislature has created a formula for child support that rarely can be altered by the parents, even by consent.
Types Of Child Support Calculations
There are two types of child support calculations. First, the more common method is based on one parent having custody and the other parent having less than 128 overnights per 365 overnights per year. Second, there is the less common method, which is based on the parent paying child support having between 128 and 182 overnights per 365 overnights per year. We will call the former the “sole” guidelines, and the latter the “shared” guidelines, even though these terms have nothing to do with child custody language.
The sole guidelines are almost completely driven by the gross monthly income of the parent paying child support. So, if you are the one paying child support under the sole guidelines, save your breath about telling the other parent to work harder and earn more money. It won’t reduce your child support payments.
Under the shared guidelines, income matters a great deal, and it can even rarely end up with the parent who has the children more overnights paying the other parent child support. Yikes!
Now, let’s go back to a concept I began exploring earlier, the interplay between alimony and child support.
The Connection Between Alimony & Child Support
Child support is calculated based on the gross income of each parent. Alimony is counted towards the income of the party receiving alimony, and it is deductible to the other parent. So, where the dad earns $5000 per month in gross income and pays $500 per month in alimony, his true gross income is $4500 per month. If the mom earns $4000 per month, her true gross income is $4500 per month.
These adjustments will make a small but significant adjustment under the sole child support guidelines, but they will make a surprisingly large adjustment under the shared guidelines (and that adjustment will be larger the more overnights the parent paying child support has).
Mortgage Payments During Divorce In Howard County
We have been exploring why guys hate paying alimony when the reality is that paying alimony can be used to the financial advantage of a man during a divorce. I have already discussed that alimony is tax deductible and reduces your gross income for child support purposes, which will reduce your child support obligation.
We are now going to talk about the effect of paying the mortgage-or mortgages-on the family home has on alimony and child support.
How Mortgages Are Affected By Alimony & Child Support
One of the larger complaints I get from men is that women do not appreciate the financial hardship of a husband who is trying to do the right thing, paying for everything, and cannot afford to live anywhere except back at his parents or in a rented room that is hardly conducive to having the children stay there.
Imagine paying alimony, child support, the mortgages and a lot of other family and child-related expenses before even being able to pay for anything for yourself. It is horrible and overwhelming, and it can lead to resentment and all sorts of negative consequences.
Comparing The Financial Terms Of Child Support & Alimony To Net Income
It is extremely important to have a divorce attorney who can explain this to the master or judge in simple, financial terms that are easily understandable and compelling. The best way to do this is to add it all up, compare it to your net income and show the percentage of net income being used.
Here is a simple example.
- Alimony: $1000 per month
- Child Support: $1500 per month
- Mortgage Payments: $2500 per month
- Total Monthly Payments:: $5000 per month
- Husband’s Net Monthly: $7500 per month
It does not take a rocket scientist to see that 2/3 of the Husband’s net month income is going to family expenses, yet of the $5000 he is paying, $1000 of it is deductible as alimony, although the $2500 of monthly mortgage payments may also be deductible.
In this type of a situation, I will recommend to the husband to agree to lower child support, higher alimony, paying all of the mortgage payments, as well as getting the dependency deductions for the child or children. A trusted CPA/tax advisor can easily calculate the savings to the husband.
More importantly, where the wife is not earning a huge amount of money, the child support creates no tax to her, and she is paying a very small amount of tax on the alimony, and she is likely in such a low income tax bracket that it does not have a major adverse consequence to her.
Right now, you are either “getting this” or you are completely baffled by the math and by the child support that makes no sense. That is why you need a divorce attorney with extensive knowledge of these financial relationships on your team.
Monetary Awards In Howard County
We have explored the tax deductibility of alimony, the tax neutrality of child support, how paying alimony reduces child support and how paying on the mortgage(s) on the family home can (1) increase deductibility, but (2) create an overwhelming financial obligation.
There is one more major issue to discuss within this overall topic, which is the effect the distribution of assets may have on your overall burden in a divorce case.
Distribution Of Assets In A Divorce Case
The distribution of assets in a divorce case is handled through a concept called a monetary award. It works like this. If you are trying to equalize the assets of the marriage, and the husband has $400,000 of marital assets, and the wife has $100,000 of marital assets, they total $500,000. Each will end up with $250,000 in assets, so the husband will have to transfer $150,000 in assets to the wife.
This transfer itself is not a taxable event under Federal law. It can be made in lump sum, or it can be broken down into payments. Sometimes, parties will try to agree to monthly payments for a monetary award so that it looks like alimony but is neither taxable to the recipient nor deductible to the one paying it. The IRS tends to catch onto this and will re-characterize it to get their money, so you need an experienced divorce attorney, as well as a trusted tax advisor, who can craft a solution to minimize adverse tax effects.
If you are not a numbers person, then this has completely overwhelmed you, right? In that care, get to an experienced divorce attorney now, and we can explain it to you even more simply.
Review Your Case With An Experienced Maryland Divorce Attorney
An important lesson you can take away from this guide is to suspend the emotional aspects of alimony and calculate it based on the dollars and cents. Another important lesson you should take away from this guide is the importance of finding an experienced Maryland divorce attorney to guide you through this process and help you find the best solution that you can financially afford, both for your family and yourself.
One final thought. No one ever calculates the cost of emotions in divorce upon the finances. I will tell you this. The longer you are controlled by the emotions within divorce, the more you will likely pay at the end of the process.
For more information about your divorce case and the father’s rights, reach out to the experienced Maryland divorce attorney at SIEGELLAW by calling 410.792.2300 or by requesting a consultation online today.