When facing a divorce, both spouses must balance the stress of finances on top of their emotional upset. No matter if the divorce is amicable or contested, there are a large number of factors to consider when trying to understand how money and other assets will be divided. While division of assets and child support are sometimes easier, determining the amount of alimony payments to a former spouse can be a challenge.
What is Alimony?
Divorce means that the money that was once shared for a married lifestyle is now split. This division can mean that one spouse will now face financial struggles that are different from the lifestyle he or she was used to when married. Alimony is the term given to payments from one spouse to another after a divorce to maintain the quality of life that was enjoyed prior to the split.
Perhaps one spouse stayed at home to raise the children, and has no income of his or her own. Or maybe the cost of living in a high-rent district is now difficult on only one income. Whatever the case, the courts step in to determine the amount of alimony payments one spouse must pay to the other in order to maintain a similar living arrangement.
Most alimony payments are calculated to be given in monthly payments for a specified amount of time. In some cases, a higher alimony payment is mandated for the first 6-12 months after the divorce to allow the spouse to get back on his or her feet, find work, get necessary certification, or simply to get used to the new living arrangements. After that period, the alimony payments may decrease or even cease altogether.
These details are usually decided by the court and will be clearly specified as part of the divorce judgements.
How to Calculate Alimony Payments?
Many states now use a formula to help determine the amount of alimony one spouse must pay to the other. Each state has different rules and each individual divorce case may affect the outcome. In North Carolina, family courts have not adopted one official formula or calculator, so results may vary on a case to case basis. The main change for North Carolina is in terminology. Postseparation Support, referred to as PSS, is the new term North Carolina courts use to refer to payments from a supporting spouse to a dependent spouse after divorce.
Rough Cut 1/3 Formula
Some states use a basic 1/3-1/3-1/3 rule of thumb for calculating alimony payments. This is sometimes referred to as the “Rough Cut” formula. For this scenario, you add the annual income of both spouses, then divide by three. The assumption is that one third goes to the payor, one third goes to the payee and one third goes to the government for taxes. Once the one-third dollar amount is determined, the court subtracts what the dependent spouse makes and requires the supporting spouse to pay the difference in PSS.
The equation looks something like this: (X + Y)/3 – Y = payment
For example, if Mr. Smith a web developer, makes $200,000 (X) and Mrs. Smith a Carpenter Ranelagh earns $40,000 (Y), their total combined income is $240,000. Using the rough cut formula, $240,000 divided by 3 equals $80,000.
(X) $200,000 + (Y) $40,000 = $240,000.
$240,000/3 = $80,000 – (Y) $40,000 = $40,000.
Since Mrs. Smith earns $40,000, that is subtracted from the $80,000, which means Mr. Smith’s PSS payments must be $40,000 annually.
Half Minus Taxes Formula
Another common approach in some states is to simply add the total of each spouse’s annual earnings and divide by two.
(X + Y)/2 = Payment – taxes
Using the same numbers in the previous example, that would look like the following:
Mr. Smith’s earnings (X): $200,000 + Mrs. Smith’s earnings (Y): $40,000 = $240,000 combined.
Divided by 2, that equals $120,000 each. When you subtract Mrs. Smith’s earnings from that result, she would be owed $80,000 annually, but would then need to pay taxes on that amount. Mr. Smith can deduct his PSS payments as non-taxable since he pays them out. However, Mrs. Smith must pay taxes on what she receives since PSS payments are considered income.
Each Case is Different
Keep in mind that North Carolina still has not adopted any of the above formulas for regular use in divorce cases. In each case, the judge still determines the amount of alimony or PSS, if any, to be paid.
Other factors that are considered when calculating alimony are length of marriage, children, and age of spouses. The longer the marriage, the higher a typical alimony payment will be. The same is true for age and children.
The one common factor in most states is that alimony or PSS payments will end once either spouse dies, gets married, or begins living with another partner. At that time, all alimony or PSS payments cease.
For more information on alimony payments, contact a reliable family law firm. Since each case is different, you need someone with experience to help you through your divorce proceedings.