Spousal maintenance (often referred to as “alimony”) involves one party to a divorce paying the other to assist them with routine household expenses following the dissolution of the marriage. The law in this area is extremely complex. For purposes of this post, it is presumed that an award of spousal maintenance is appropriate among the litigants.
The classic view of spousal maintenance involves a permanent award of support – some amount, paid monthly, for an indefinite period of time. However, the law in Minnesota allows the litigants much more latitude than a judge in terms of resolving the issue of alimony.
Following a trial, the Court really only has a few options. First, the judge can award permanent spousal maintenance. Second, the judge can award spousal maintenance on a temporary basis (some amount, paid monthly, for a defined period of time). At the end of the temporary time period, the recipient of spousal maintenance has the ability to file a motion with the Court, seeking an extension of the maintenance timeframe. Third, the judge can deny the requesting party any award of alimony.
The nice thing about resolving the issue of spousal maintenance through settlement discussions, rather than by way of trial, is that the parties to the case have many more options available to them.
For example, the parties can agree to something called a Karon waiver. A Karon waiver (named after a Minnesota Supreme Court case involving the Karon family) involves a finite amount of maintenance paid for a finite period of time. Each side receives the benefit of certainty, as the amount of support is not subject to modification. The risk with a Karon waiver involves: (1) the potential for the payor to suffer a pay reduction, making payments more difficult; and (2) the potential for the recipient to need alimony once the relevant timeframe for payments has passed.
In either situation, the litigants would be out of luck, as the nature of a Karon waiver involves certainty of payment amount and duration. The benefits, however, usually outweigh the risks. Most often, the payor appreciates knowing exactly how much, and for how long, payments must be made. They can plan their future accordingly.
Another way to resolve the issue of alimony involves a lump sum buyout. If the parties have enough equity in various assets, they may wish to consider a lump sum payment in lieu of ongoing payments. The source of payment rests in the payor’s share of the marital estate. For example, let’s suppose that a spouse is willing to accept $1,000.00 per month in alimony for a period of ten years (120 months).
The cumulative value of those payments, at least on the surface, totals $120,000.00. Yet, alimony is taxable income to the recipient (property settlements are not). And, the time value of money would suggest that a lump sum “up front” requires a bit of a discount relative to payments over time. Consequently, the recipient may be willing to accept an extra $80,000.00 in marital assets in lieu of payments totaling $120,000.00 over a decade. Of course, each case is fact specific. Do not rely on this quick example in negotiating your own divorce. All sorts of variables come in to play – such as income tax brackets, investment options and the risks to each in accepting a lump sum buyout.
Of course, the litigants are also free to do a “partial buyout,” in which a lump sum payment is made in exchange for reduced monthly spousal maintenance payments.
Finally, we often see litigants agree to assume responsibility for a greater share of the marital debt as an offset to spousal maintenance payments – a lump sum in disguise.
If you have questions about spousal maintenance, you are invited to contact our law firm for a free consultation. Call (763) 323-6555 and an experienced family law attorney will assist you.