Alimony Mediation

Mediating your Alimony claim as in Maryland as part of your Settlement Agreement is a sensible alternative to litigating your Alimony in claim. In 2018, the parties should be aware that the federal tax laws relating to Alimony deductibility will change in 2019 under the Tax Cuts and Jobs Act (TCJA) passed by Congress and signed into law by the President.

Starting January 1, 2019 the tax laws relating to Alimony deductibility will change and many couples are turning to the Mediation process to take advantage of the existing laws to stretch the family dollars to give less money to the taxing authorities.

Why Mediation for Alimony cases in 2018? Mediation is a time-efficient (and cost-effective) process, and time is of the essence to resolve your Alimony claims in 2018 in order to preserve the deductibility for the future.

Pre-2019 Alimony deductibility agreements will be honored (i.e., “grandfathered”) by the taxing authorities. The new law effective in 2019 disallows the deductibility of Alimony and the recipient will no longer be required to pay taxes on the Alimony received. While this may seem like a “win” for the recipient spouse, it may not be a “win” for the family as a whole. Alimony issues are and were negotiated with the recipient spouse’s tax liability in mind. The “need” of the recipient spouse was assessed to include the recipient’s additional tax burden along with the recipient’s other financial needs. Even if the recipient perceives the law change as a potential “win” negotiating an Alimony agreement now may provide negotiating leverage in a 2018 Agreement, which hopefully results in “win-win” scenarios for both parties.

The Internal Revenue Service will benefit because the taxpayer with the higher income and higher tax bracket will be paying the taxes on the money paid to the recipient spouse. This may result in the family having fewer after-tax dollars to support the family. It may make Alimony issues more difficult to negotiate simply because there will be fewer dollars.

See:
Alimony Under the New Tax Law
Alimony Loss of Tax Break
Tax Reform and the Alimony Deduction

Alimony means the one party is paying the other party, directly or indirectly (i.e. payment of mortgage) for support of their spouse or former spouse. The Alimony will be paid in specific intervals (usually monthly). The parties must be living in separate residences when the Alimony is being paid. Alimony in Maryland terminates as the parties may agree or by order of the Court. Alimony in Maryland ends upon the death of either party. Through 2018 Alimony is deductible from the income of the party paying the Alimony for tax filing purposes. This means if the paying party earns $75,000.00 and pays $10,000.00/year in Alimony, the paying party is taxed on only $65,000.00 of income. Through 2018, the party receiving the Alimony is taxed as if he/she has personally earned the income. There are a few exceptions to the tax rules relating to deductibility of Alimony that the parties may agree to in a private Agreement relating to Alimony. In 2019, this deductibility ends.

Unlike Child Support in Maryland, for which a formula exists under law, Alimony in Maryland has no specific formula by law. This makes Alimony unpredictable. Court-ordered Alimony in Maryland is determined by examination by a judge of relevant factors, including: (Law of Alimony in Maryland)

• The ability of the party asking for alimony to be completely or partially self-supporting;
• The time necessary for the party asking for alimony to obtain sufficient education or job training to enable that party to find suitable employment;
• The standard of living that the parties established during their marriage;
• The length of the parties’ marriage;
• The contributions, monetary and nonmonetary, of each of the party to the well-being of the family;
• The circumstances that contributed to the estrangement of the parties (i.e. “fault”);
• The age of each party;
• The physical and mental condition of each party;
• The ability of the party from whom alimony is sought to meet that party’s needs while meeting the needs of the party seeking alimony;
• Any agreement between the parties;
• The financial needs and financial resources of each party, including:
  • All income and assets, including all property that does not produce income;
  • Any monetary award concerning property and award of possession and use of the family property
  • The nature and amount of the financial obligations of each party; and
  • The right of each party to receive retirement benefits; and
• Whether the award would cause a paying spouse or a spouse who is a resident of a care facility with more than two patients to become eligible for medical assistance earlier than would otherwise occur.

The court may also consider other factors it deems to be relevant- in Maryland this often includes a review of the “Kaufman Alimony Guidelines” formula worksheet. See: Ending the Alimony Guessing Game.

In recent family law history in Maryland an Alimony algorithm formula was developed by The Bruce A. Kaufman Center for Family Law, in conjunction with the Women’s Law Center of Maryland. It is widely acknowledged that the “Kaufman Guidelines” are highly useful but somewhat limited in their application. This may be because the “Kaufman Guidelines” considers only the factors of:

• length of the marriage
• age of claimant
• education of the claimant
• earning potential of claimant
• income of the parties
• child care responsibilities

However, the formula provides a point of reference for mediating Alimony disputes in Maryland after analysis of the other relevant factors.

While mediating alimony in Maryland, the parties follow the same outline of factors as the law. The difference is that the parties will discuss the facts relevant to each factor instead of a judge. The parties will be asked to provide expense information to determine the “need” of the party asking for Alimony; and the “ability to pay” by the other party. If there are minor children, that analysis will first include the Child Support component in the need and the ability to pay. Remember that Child Support is based on the incomes of the parties and if one party is providing income to the other party, Child Support (which is not taxed) will change as Alimony changes.

If a party needing Alimony has a plan to receive training or obtain a degree, then the parties will analyze those projected expenses and the timetable for that. The parties will consider each factor and whether or how it applies to the facts of their lives.

When mediating Alimony in Maryland, however, one party or both may seek a legal opinion in between mediation negotiating sessions. This is very common during mediation where there is an Alimony request. It is probably useful to consult an attorney who practices in the County Court where the Alimony case would be tried due to the variation from county to county of Alimony awards. Many times, however, the parties themselves arrive at an acceptable figure and await their independent attorney consultation upon the review of the Agreement to ask if their Agreement fairly conforms with their legal rights and obligations.

In general, there are 3 types of Alimony:

Pendente Lite Alimony- In litigation the term “pendente lite” is Latin for “pending the litigation.” In mediation of alimony in Maryland there may be a goal to arrive at temporary agreement while the parties are negotiating the final settlement. If there was no agreement, then the party needing the Alimony may have no choice but to resort to filing in court. This is because a court can only award Pendente Lite Alimony retroactive to the date of filing a petition in court asking for Alimony. It is this goal of avoiding the financial and emotional costs of litigation which propels rational parties to find the temporary solutions and keep the settlement negotiations viable without interference of nasty litigation. A lot of times in mediation this goal is accomplished by an allocation of which party will be paying for which expense as the parties continue the negotiations to their conclusion.

Alimony negotiations focus on how much and how long (duration). Negotiating needs and ability to pay to arrive at a monthly alimony agreement only supplies the “how much.” When determining how long Alimony will last, in Maryland Alimony duration is categorized in two ways:

Rehabilitative Alimony. This is a type of Alimony most frequently awarded. It is intended to provide a period of support to allow the party who needs Alimony the time and sometimes the funds to get training to revive his or her vocational marketability and employability. It is intended to allow a party time and support to obtain employment, which may take more time if one party has been out of the workforce for a period of time. The goal is to rehabilitate the party who needs support to become reasonably self-supporting.

Indefinite Alimony. Indefinite Alimony means that Alimony has no specified termination date. Indefinite Alimony may be modified by the parties or the courts over the years. It is most often mediated in long-term marriages where the needing party is of an age, or has medical conditions such that self-support is unlikely; or if that party does become self-supporting, the parties’ respective standards of living is “unconscionably disparate” meaning, unfairly different. Indefinite Alimony also may serve to protect the payer of Alimony in the case of lost employment or illness, the court (and the parties) may modify the award to reflect both parties’ realities.

When you mediate Alimony in Maryland, you may negotiate a hybrid where the amount is modifiable depending on the circumstances and the duration is fixed. Tailoring the alimony agreement to the parties’ reality and preferences is why mediating alimony makes sense.

Alimony awards across Maryland and nationally are unpredictable. There is no reason to believe that a judge can predict a fair award better than the parties themselves. It stands to reason that the people intimately familiar with the facts of their lives, with the help of the neutral mediator, and perhaps advice from their independent attorneys or financial professionals, can make rational private agreements relating to Alimony in Maryland.

Mediating Alimony in Maryland is a way to make sure each party is heard. The parties’ direct involvement at looking at both parties’ expenses may be the most persuasive way to come to an agreement. When parties are detached from attorney-led negotiations and number crunching, they will not fully internalize the reasoning of the Alimony agreement- it is the reasoning which allows the parties to come to an understanding based on facts. The mediator will try to guide the parties away from positions and towards their calculators. When agreements are made based on true understanding, the Alimony agreement may be more satisfying. Unfortunately, many parties find they both will financially struggle for a period of time after separation and divorce, but mathematically understanding that grim fact may help avoid the resentment of the reality.

Therefore mediating Alimony in Maryland, like mediating all of your family law matters arising from separation or divorce in Maryland aims to provide the parties with understanding and satisfaction even with difficult decisions, including Alimony.