Divorce is stressful for anyone, but high-income couples have unique struggles. Fighting about money can be a source of discord in a relationship and that doesn’t change when the marriage ends.
If you are the higher-earning spouse or the employed individual in a one-income household, you may be required to pay alimony but be unaware about how it works. What will paying alimony look like in Pennsylvania?
Pennsylvania courts determine whether a divorce should include alimony based on several factors, among which include:
- Each party’s income, income-earning potential and a party’s contribution as a homemaker
- Those income sources, which can also include medical, retirement, insurance or other benefits
- Each party’s individual property, assets, liabilities and inheritances
- Each party’s age
- Each party’s physical, mental and emotional state
- Each party’s education level and education needed for a party to find gainful employment
- Each party’s individual needs
- The length of the marriage
- How much each party contributed to the other’s education, training and earning potential
- How child custody agreements will affect the earning power, expenses or financial responsibilities of each party
Duration, modification and termination
The court may award alimony for a specific period or indefinitely. This ultimately depends on the various factors that led the court to award alimony.
Either party may be able to modify or terminate an alimony award if there are significant changes to their circumstances or the circumstances of their ex-spouse.
Alimony will affect your taxes
As of January 1, 2019, those who pay alimony will experience a tax hit due to changes made by the Tax Cuts and Jobs Act (TCJA), which passed in December 2017. Congress reversed tax rules so that alimony recipients are not taxed on those funds, but alimony payers have to include those payments as taxable income.
This makes a big difference for high-income earners, as it could bump them into a higher tax bracket despite having fewer post-tax dollars available for themselves. It could make divorces more contentious as your spouse tries to establish financial security while you try to prevent losing yours.
High-asset individuals going through a divorce can work with an attorney on how to negotiate alimony and explore alternatives that allow both individuals to have a financially healthy future post-divorce. It may seem daunting, but it is possible.