Differentiating Between Alimony In Gross And Periodic Alimony
There are two major forms of alimony: periodic and alimony in gross. Many people know of the former, where you make periodic payments to your former spouse. Alimony in gross, on the other hand, involves making a fixed payment either as a lump sum or spread over a specific period. Here are further differences between these two forms of alimony:
Modifiability
Periodic alimony payments can be modified while alimony cannot be modified. You can petition for an increase or reduction in alimony payments if:
- Your income decreases or increases
- Your partner loses his or her primary residence
- A financial emergency occurs (for example if an accident necessitates payment of a huge medical bill)
- The cost of living increases or decreases
The person seeking the modification must petition the court for the same. The court then examines the reasons for the modification and adjusts the alimony accordingly. However, alimony in gross is much like a debt – a debt doesn't increase or decrease even if the debtor's or creditor's financial situation changes.
Taxation Issues
The IRS will tax any financial payments made to an ex-partner if it is termed as alimony. This will be the case whether or not the payment is made as a lump sum or made in installments. As a general rule, the giver can deduct periodic alimony while the recipient must report it as income (meaning it's deductible).
However, if you opt for alimony in gross, then you can avoid taxation by treating it as part of the divorce settlement rather than financial support. This entails treating the payment as part of the asset division. As usual, you need to involve your attorney in these deliberations, because taxation issues can be very complicated, and the IRS will not treat your ignorance as a defense when you make a mistake.
Calculation
Factors used to calculate periodic alimony include the standard of living during the marriage, present income and assets as well as future projected earnings among others. However, alimony in gross relies more on the standard of living during divorce and present earning capability and less on future or projected earnings.
These are some of the things to know when you have a divorce coming up, because alimony will certainly feature in the negotiations. Of course, the involvement of a family lawyer like those at Haslam & Perri LLP may help you to clarify how the factors discussed above applies to your particular situation.
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