By JoAnne C. Holt, Divorce financial analyst
A rehabilitation plan may be the best solution for you if you are paying maintenance to a spouse who hasn’t worked in quite a while but has the ability to earn a good living.
This is a serious consideration for short-term or moderate-term marriages where permanent divorce alimony is less likely to occur and the financial well being of the spouse is critical for the children to have a stable home.
It is also important in long-term marriages to provide additional resources and opportunities to the alimony recipient spouse in case the payor can no longer pay.
There are many benefits to creating a rehabilitation plan, including but not limited to, assisting a party establish the capacity for self-support and thus self-respect and independence. Particularly in our present economy, many recipients of alimony are facing a rude awakening. Gone are the days of the steady alimony check with a nice cost of living increase annually.
Adding insult to injury is a common state law prohibiting a “savings component” in the calculation of alimony needs. What this means is that in calculating a recipient spouse’s needs and thus alimony, many courts disallow the inclusion of a savings component.
In order for them to create savings, the recipient spouse would have to reduce their anticipated spending levels in other areas. This creates a no-win situation for both the payor and the recipient.
Why the payor? Because this type of structure does not lend itself to teach the recipient to save and plan for retirement so they inevitably become lifelong dependents of the payor.
Why the recipient? They become falsely dependent on a stream of cash flows that cannot be guaranteed to continue.
What about disability of the payor spouse or some other financial disaster that may reduce the payor’s income? I see many alimony recipients act like the alimony check is a government payment that will never go away…until now.
Now many are in shock as their ex-spouses are filing for a reduction due to unforeseen circumstances and lack of income and therefore ability to pay. There has been a flood of post-judgment actions for parties seeking modification of alimony due to zero ability to pay.
There is no better time than in this present economy to improve someone’s training or education to allow them to seek better paying opportunities later. Unemployment rates in some areas are as high as 14.4%.
An important aspect to any rehabilitation plan is to make sure you have the agreement clear as to the penalties for failure to comply. For example, include a provision that states non-compliance with the rehabilitative plan will result in an immediate reduction in monthly benefits and at the end of the term, income will be imputed “as if” the plan was completed.
It is very disturbing when I see a payor agree to a larger alimony award for a shorter period of time and pay anticipated educational costs for a good rehabilitation plan only to get to the end and the recipient never took a class and is in the same position as at the time of divorce.
If there are minor children at home what does the payor do? Do they continue to pay voluntarily for the benefit of the children? Does this not reinforce the recipient spouse to continue to be a dependent? Consequences must be in place to discourage non-compliance.
Just like a business plan is helpful in taking a business to the next level, so is a good rehabilitation plan! Of course, you should also check to make sure that rehabilitative alimony is an option in your state.
JoAnne C. Holt is a Florida-based CPA, certified family mediator, and certified divorce financial analyst. She also founded www.standbyhousing.com, an organization that presents alternative housing solutions to fathers going through a divorce. Her columns on finances and divorce run monthly on DadsDivorce.com.
One comment on “Finances and Divorce: Alimony and Rehabilitation Plans”
You should have made clear in your article that some states, like Colorado, have NO concept of rehabilitative alimony. The recipient in states like Colorado are under no presumption of ever obtaining employment beyond what they may already have.
Yes, it sucks to be stuck paying alimony in a state like this.