In April of 2017, the Alabama legislature enacted two laws that will impact those divorcing after January 1, 2018. The new provisions affect alimony and the treatment of retirement benefits in a divorce case. In addition, changes to the federal Internal Revenue Code will impact some divorcing parties, creating a new consideration for those negotiating alimony and maintenance.
Changes to Alabama Alimony Law
The opportunity for one spouse to secure lifelong or long-term alimony payments is significantly limited by HB 257. With this new piece of legislation, Alabama joins the many other states that have limited alimony or spousal maintenance to “rehabilitative” payments.
Rehabilitative alimony is designed to give a spouse who has been outside the workforce or whose earning capacity is otherwise compromised to get back on his or her feet. Under the new law, rehabilitative alimony may be granted for a period of up to five years, during which the spouse receiving alimony is expected to pursue job training, return to school, gain work experience, or otherwise build his or her ability to be self-supporting.
Alabama divorce courts will retain some discretion in awarding longer-term alimony. However, if alimony is awarded for a term of more than five years, the judge must make an explicit finding that rehabilitation is not feasible. Some examples may include a divorcing spouse who is of advanced age and has been out of the workforce for several decades, or one who has physical or mental limitations that would prevent him or her from becoming self-supporting.
In most cases, the judge’s discretion to award alimony for a period greater than five years is capped at the duration of the marriage. For example, if a couple was married for 12 years, a judge finding that rehabilitation was not realistic could award alimony for five years, or 10, or 12, but not for any period longer than 12 years. However, if the marriage lasted for 20 years or more, then there is no specific cut-off. Where rehabilitation is not feasible and the parties have been married for 20 years or more, the court may grant alimony for any specific time period, or for life.
Changes to the Treatment of Retirement Accounts in an Alabama Divorce
Under longstanding Alabama law, a divorce court could not allow one party a share of the other’s retirement account unless the couple had been married for at least 10 years. However, parties could enter into an agreement to split retirement accounts, even if they had been married for less than 10 years. As of January 1, 2018, the 10-year requirement has been eliminated, giving courts greater discretion over apportionment of retirement accounts.
Elimination of the Federal Alimony Deduction
The Tax Cut and Jobs Act, signed into law in December, eliminates the alimony and separate maintenance deduction for federal taxpayers paying alimony. Currently, the party paying alimony may deduct those payments from his or her taxable income, but the recipient must pay income tax on alimony received. The new law will shift the burden, eliminating the deduction for the payor, but also eliminating the obligation for the recipient to pay taxes on alimony.
Impact of New Laws on Alabama Divorce Cases
Though the changes to Alabama law are already in effect, the new federal tax provisions won’t take effect immediately. The shifting of the tax burden relating to alimony payments will apply only to those divorcing or entering into a separation agreement during or after 2019. The new law and the lag time before it takes effect may play an important role in determining when best to file for divorce.
If you’re considering divorce, talking to a local family law attorney will help you to understand the impact of the law changes in your specific circumstances.