North Carolina divorce: Standards for alimony awards and new tax law
An alimony award as well as its size and duration can have significant impact on the parties’ standard of living after divorce.
In many ways, the law in the Tar Heel State that determines whether an award of alimony is awarded in a divorce is quite traditional as compared to those of some other states. Specifically, judges have relatively broad discretion and the state’s law places a big emphasis on marital misconduct.
Impact of the Tax Cuts and Jobs Act
An important, urgent issue at the time of this writing in mid-2018 is the change in the federal tax treatment of alimony that will take effect on January 1, 2019. For the past 75 years, alimony paid has been deductible for the paying spouse and taxable income for the recipient.
For divorce agreements signed after 2018, paying spouses may no longer deduct alimony paid and recipients must no longer pay taxes on it. Many commentators believe that this change will make negotiations about alimony more difficult because it will be more expensive for the paying spouses without the tax break. Potentially this could be a significant cost. Some commentators think that the new financial pressure on paying spouses will suppress the level of alimony they will agree to so much that the fact that it is no longer taxable to recipients will not be much of a financial advantage.
What is certain, given these uncertainties, is that anyone facing potential divorce now should seek immediate legal advice about the tax issues to determine whether it would be advantageous to try to sign a divorce settlement before 2019 or even to try to wait until the new year, depending on the circumstances.
Divorcing parties can negotiate their own alimony agreement with the terms of their choice. If they cannot reach an agreement, however, the judge in the divorce case will make the decision whether to award alimony and what the award will look like.
The judge must make this decision in light of fairness and equity. A state statute lays out the process in detail. First, the court looks at whether one spouse is financially dependent and the other supporting.
North Carolina law takes seriously – certainly more seriously than most other states – whether the parties engaged in “illicit sexual behavior” during marriage and on or before the day of separation. In contrast, some other states take the opposite view and do not allow marital misconduct to be considered at all in alimony awards.
If the dependent spouse engaged in this kind of marital misconduct, he or she “shall not” get alimony. If the supporting spouse did, the judge “shall order” alimony. If both engaged in this kind of marital misconduct, the court has the discretion to consider the circumstances and decide whether it is warranted. However, if one party condones the illicit behavior of the other, the court “shall not” consider the behavior.
After eligibility is determined, the judge has wide discretion to decide alimony duration (ending at a particular date or ongoing) and amount, and whether it should be paid in ongoing payments or in one lump sum.
The judge is instructed to consider all relevant factors to the family at issue, including 16 specific things in a list in the statute. Some of them are:
- Marital misconduct
- Length of marriage
- Marital standard of living
- Each parties age and “physical, mental, and emotional conditions”
- Each of their incomes
- Contribution by one to the other’s career
- Financial impact of a parent having custody of a child
- Each of their assets and liabilities, and debt loads
- Homemaker contributions
- Each of their needs
- Tax ramifications
- And more
This article introduces North Carolina alimony, but anyone facing alimony questions in divorce or separation should seek experienced legal advice from a family lawyer.