One of the most common concerns in divorce after 50 is the amount and duration of spousal support or alimony as it is sometimes called. I often remind my clients that, “like marriage, there are no guarantees that spousal support will last forever.” Many people are under the misconception that if they were married for a long time, over 10 years in the state of California, they will receive spousal support for the rest of their lives. That simply isn’t true for many reasons, as I’ll discuss below. Even if there is no official end date to the order, circumstances can arise that will reduce or end those payments very suddenly.
Keep in mind, there isn’t a pot of money at the courthouse that the judge dips into to pay spousal support to your client. It is tied to the payer and is affected by changes to the financial and physical well-being of both spouses. As an advisor, it is very important to set realistic expectations for your client and help them plan for the “what ifs.”
So where does this magical support number come from? Many are under the misconception that it is solely based on the “marital standard of living.” That is the amount of money the couple spent while they were married. The reality is support is determined first by the income the couple makes.
It helps to remind your client that divorce is a division problem, not a multiplication problem. For the vast majority of people, that means that both parties will have about half as much income to live on post-divorce. Unfortunately, on more than one occasion, I’ve had attorneys tell my clients to spend a lot of money once divorce is looking likely so that they can increase that standard-of-living number. It’s up to me to then remind them that spending more doesn’t increase their income or their likely support order; it just depletes their assets.
Beyond the income number, a spousal support order is determined by several points including, the ability of one party to pay; the need for support by the other party; the limitations on the ability of the recipient to earn income, such as health issues or a lack of education or experience; and findings of domestic violence.
In a no-fault state like California, domestic violence charges against the payer do not result in an increase in the amount of support paid, but it does mean the victim of the violence will never pay the perpetrator. In other states that is not the case. In all cases, the death of either spouse causes an end to support; so does remarriage — and in some cases, cohabitation.
“We were married for 23 years so of course he’ll have to pay me for the rest of my life.” I hear this “urban myth” from most of my clients before I explain to them the reality of the support order. In many states, spousal support for a marriage that lasts less than 10 years is ordered for no longer than half the length of the marriage. For marriages lasting longer than 10 years (often considered long-term marriages), there is often no official end date, but certain changes can end it immediately or reduce it over time. This is another good opportunity for you to be that myth buster for your client.
It is very important to check the laws in your state regarding the length of marriage and spousal support. The definition of long-term marriage varies widely, from seven to 17 years in some states. In other states the length of the marriage has little bearing on the support awarded.
So what are those circumstances that end support for long-term marriages? The first is a newer update to recent support orders that I have seen, as well as a change in the family law code in many states, that says that both parties are to be working toward financial independence. This means that very often there are vocational evaluations ordered to determine the potential jobs the recipient is qualified for and then that potential income is imputed to the non-working spouse.
A vocational evaluation is performed by a court-recognized expert. The person being evaluated is given various tests to determine their skill levels and a detailed interview is conducted to determine their past work experience, education and willingness to work. This data is then used to search for potential jobs that the subject would theoretically be qualified to apply for. Based on these potential jobs, the expert then determines the potential income the subject could earn.
As an example, someone who has been out of the work force for many years but is otherwise able bodied, would likely be imputed (assigned) at least minimum wage as a starting point. This imputed income, or potential income, is then used to reduce the support needed, based on the hypothetical earning capacity of the recipient.
I have a client who is 60 and has not worked outside of the home in over 25 years. This was the agreed arrangement between the spouses that she stay home with the kids while he worked. Sadly, when they divorced, the judge ordered spousal support based on a vocational evaluation finding that she could earn a monthly income of $3,000. She was not employed and despite trying for many months, is still not employed, but her support is reduced. This is the reality of spousal support and you can really help your clients immensely by preparing them for this possibility.
Keep in mind, however, this evaluation can also be used if the potential payer decides to quit a career “coincidently” during the divorce proceedings. A PhD who decides to become a barista can also be imputed income at a level commensurate with their education and experience as well.
There is also another “tool” that can be part of a settlement that serves to reduce the amount paid over time. This tool is called a Gavron Warning in the state of California and it is a clause in the agreement that requires the supported spouse to demonstrate that they are actively seeking employment, or their support can be reduced. I see this type of language in many state statutes so it is always important to find out what the law says in your state. Each state treats support or alimony differently, but overall there is a move toward reducing the lifetime payments that had been awarded in the past on a regular basis.
I had a client who came to me with a settlement that required her to document 30 job applications per month or her support would be reduced by a percentage every six months. While this was the most egregious use of this clause that I have seen, I do see some variation of this wording now in many settlements as a way to put the supported spouse on notice that the payer will be seeking a reduction in support over time, one way or another. Each state is very different which makes divorce even more complex for the advisor who is trying to help their client.
In addition to these circumstances, there are also the unforeseen events such as job loss or even death or disability of the payer. It is much more likely statistically that a 50-year-old might become disabled rather than pass away. I had a client whose ex-husband had a stroke at age 57 and could no longer work as an orthopedic surgeon. While he had disability insurance, that policy did not provide full wage replacement and her support order was reduced significantly.
As advisors, we often have to be the ones to talk about these difficult possibilities and find ways to protect our clients from them with either other assets or insurance policies. It is also very important to remind your client that most support orders are modifiable and can be changed when one party retires or changes jobs etc. Even a non-modifiable order is difficult to enforce if there is simply not enough money to pay.
The good news is, as advisors we can do a lot to help our clients prepare for the realities of spousal support orders and their limitations. Here are some key takeaways:
• Don’t let clients try to spend up to the marital lifestyle number in an attempt to get more support. They will just end up depleting assets and they’ll have less money in the end. They could also end up owing money back to the other spouse.
• There are many factors that go into a support order. Make sure your client has realistic expectations and they do not launch an expensive legal battle that won’t result in a higher support order.
• It is important to remember that support orders are not based on gender. The rules apply the same regardless of who is the higher wage earner. I have women executives as clients who are shocked when they find out that they will be obligated to pay their ex-husbands. Your client will need you to help them plan for that possibility.
• No matter what the circumstance, it is important for the recipient of support to make efforts to become financially self-sufficient or at least to provide a supplemental income source as a backup to a support order. There is no such thing as guaranteed support. You can help protect your client with a “Plan B” option to take care of themselves. That isn’t something their attorney is going to think about for them.
• Becoming financially independent should be seen as a reward not a punishment. It will allow your client to have complete freedom from their spouse, eventually, and will provide for a future that they can design with your help and guidance.
Kathy Costas, a vice president, investment advisor and Certified Divorce Financial Analyst® (CDFA®) at EP Wealth Advisors in Westlake Village, Calif., specializes in working with men and women going through a divorce. She was appointed by the Institute for Divorce Financial Analysts as the chair of the Southern California chapter of the Divorce Alliance, a group for divorce professionals. She is also the leader of the Conejo Divorce Resources Professionals group. She can be reached at firstname.lastname@example.org or 424-323-3852.