Spousal Support, or what is often referred to as “alimony,” is a tool a judge can use to help a person who becomes economically disadvantaged by a divorce. While there is no “bright-line rule” in North Dakota as to who gets spousal support, the amount, or the duration, there are certain factors every Court in North Dakota will look at when trying to resolve these issues. If you live in Minnesota, we also discuss the same topic here.
These factors are commonly referred to now as the “Ruff-Fischer Guidelines.” The name “Ruff-Fischer” actually comes from two separate cases, Ruff v. Ruff and Fischer v. Fischer, which were heard in 1952 and 1966, respectively, by the North Dakota Supreme Court. Between these two cases the North Dakota Supreme Court addressed the following factors we now use when looking at the issue of spousal support: the respective ages of the parties, their earning ability, the duration of the marriage and conduct of the parties during the marriage, their station in life, the circumstances and necessities of each, their health and physical condition, their financial circumstances as shown by the property owned at the time, its value at the time, its income-producing capacity, if any, whether accumulated before or after the marriage, and such other matters as may be material.
When considering humans are the ones applying these factors to each case, it should come as no surprise that spousal support awards vary greatly from case to case. Although the awards vary, one thing is set in stone — taxes. Prior to your settlement conference or your trial, you must know what income tax bracket you fell in the prior tax year and what tax bracket you will likely fall in for the next tax year. “Why” you may ask? You must know your tax brackets because there are serious tax implications to any spousal support award.
In North Dakota, if you are paying spousal support you will be able to deduct the amount you pay from your income, i.e., you will not pay tax on the amount of spousal support you pay to your ex-spouse. To the contrary, if you are receiving spousal support, you will need to pay taxes on the amount you receive. The amount you “save” or receive, of course, depends on the income tax bracket you fall into when considering the spousal support award.
If, for example, a person earns between $91,150 and $190,150 they would fall into the 28% income tax bracket for the year 2016. So, if that person is ordered to pay $2,000 per month in spousal support, or $24,000 a year, they would actually pay their ex-spouse something closer to $1,440 a month, or $17,280 a year, as a practical matter due to the fact they will not be reporting that money as income to the IRS. In essence, the payor pays less than what he is ordered to pay on paper.
While the payor pays less than the amount stated in the Judgment, the payee receives less than the amount stated in the Judgment. If the payee from the example above was in the 15% income tax bracket she would receive, as a practical matter, something closer to $1,700 a month, or $20,400 a year due to the fact she would have to report the spousal support as income on her taxes and pay income tax on that money. It is easy to see that if a payee does not plan for such things, the amount requested and/or received in a divorce may end up not being enough to make ends meet.
Don’t get caught in the dark on this issue. Consult with a tax professional and an attorney in your divorce where spousal support is at issue. We also encourage you to review this blog post regarding terminating spousal support due to cohabitation. We at Severson, Wogsland & Liebl would be happy to speak with you about your case. Our Family Law Team can be reached at 701-297-2890.
Severson, Wogsland & Liebl and its affiliates do not provide tax or accounting advice. The material provided to you within this blog has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult a tax professional when addressing spousal support in your divorce case.