Friday, December 7, 2018
The Alimony Reform Act: Lessons Learned in the Last Six Years
The Alimony Reform Act of 2011 defined what alimony is and how it should work in much greater detail than the prior law. The Alimony Reform Act, 2011 Mass. Acts ch. 124. However, it also left many questions unanswered. In the six years since the Act became effective, on March 1, 2012, the courts have slowly been further clarifying, and in some cases arguably undercutting, the Act. In this article, we will summarize the provisions of the Act and note the court cases that have affected the language of those sections.
Alimony: What is it?
Alimony is defined in the Act as ' the payment of support from a spouse, who has the ability to pay, to a spouse in need of support for a reasonable length of time, under a court order.' Mass. Gen. Laws ch. 208 §48 (2012) [hereinafter §48].
Since March 2012, the courts have made clear that this is how the law has defined alimony even prior to the Act, and the Act did not change this (except for the addition of “reasonable length of time”).
“The Act altered neither the fundamental purpose nor the basic definition of alimony: ‘the payment of support from a spouse, who has the ability to pay, to a spouse in need of support.’ G. L. c. 208, § 48.” Hassey v. Hassey, 85 Mass. App. Ct. 518, 522, 2014.
The federal definition of alimony is a little different. In order to qualify for tax deductibility to the payor, the Internal Revenue Code requires that the alimony payment must be in cash, received as a result of a divorce instrument executed prior to December 31, 2018, while the payor and payee spouse are not living in the same household, and where the payment terminates upon the death of the recipient spouse. 26 U.S. Code §71 (2018). See also The Tax Cut and Jobs Act, Pub. L. No. 115-97 (2017, removing the alimony deduction for agreements entered after December 31, 2018).
What are the types of alimony?
The Act separates alimony into four different types, with distinct purposes. The type of alimony that most cases will have is dubbed “general term alimony” and refers to any type of support paid by one ex-spouse to another ex-spouse who is “economically dependent.” §48, supra. Section 4 of the Act, which was not incorporated into the General Laws, indicates that prior alimony awards “shall be deemed general term alimony.” The Alimony Reform Act, supra at §4.
The Act also creates a form of alimony called “rehabilitative alimony,” which is paid to an ex-spouse who is anticipated to become economically independent “by a predicted time.” §48, supra. The “predicted time” need not be a specific date, or even a specific expected future event of self-sufficiency such as graduation from an educational program, for example, so long as there is a general expectation that the recipient should be able to find reemployment in the future. Zaleski v. Zaleski, 469 Mass. 230, 234 (2013).
Two other forms of alimony created by the Act apply only to marriages of five or fewer years: reimbursement alimony which is used to reimburse a spouse for contributions to the marriage; and transitional alimony which is used to allow a spouse to transition to a new location or lifestyle. §48, supra.
The Act requires that to determine the appropriate form, duration, and amount of support the court must consider:
“the length of the marriage; age of the parties; health of the parties; income, employment and employability of both parties, including employability through reasonable diligence and additional training, if necessary; economic and non-economic contribution of both parties to the marriage; marital lifestyle; ability of each party to maintain the marital lifestyle; lost economic opportunity as a result of the marriage; and such other factors as the court considers relevant and material.” Mass. Gen. Laws ch. 208 §53 (2012) [hereinafter §53].
A judge must consider these mandatory factors when deciding the form of alimony, and should not consider any “irrelevant factors,” but has broad discretion in this evaluation so long as “the record indicate[s] clearly that the judge considered all the mandatory factors.” Zaleski, supra at 236.
What is the correct amount of alimony?
The Act provides guidance for setting alimony orders by giving divorcing parties and attorneys a formula to calculate the maximum amount of alimony that can be paid by one former spouse to another. §53, supra at (b). Alimony, except for reimbursement alimony, is capped at the recipient’s “need” or 30-35% of the difference in the parties’ gross incomes. Id.
The Act provides that “gross income” for alimony purposes should be defined in the same way it is defined in the Massachusetts Child Support Guidelines, subject to certain limitations. Id. This means that bonuses are included in a party’s income for alimony purposes, as the Zaleski case confirms. Zaleski, supra at 243. There are differences, though. For example, distinguishing the income used for alimony from child support, the Vedensky case indicates that if a payor spouse obtains a new second job after the initial order of alimony, there is a presumption against including this new job in a future Modification of the original alimony order. Vedensky v. Vedensky, 86 Mass. App. Ct. 768, 778 (2014).
Despite a temptation to use the Act’s formula in all alimony cases, the Hassey case makes clear that alimony is still defined by the payor’s ability to pay and the recipient’s need for financial support:
“Although the Act creates express guidelines to aid judges in fashioning alimony orders, it does not alter the principle that the central issue relevant to a financial award is the dependent spouse's ‘need for support and maintenance in relationship to the respective financial circumstances of the parties.’ Partridge v. Partridge, 14 Mass. App. Ct. 918 , 919 (1982).” Hassey, supra at 524.
It is not appropriate to simply apply the formula for the cap and use that formula in all situations as a starting point. Need can obviously be less than the formula cap, and in Hassey, the Appeals Court noted that need can also exceed the formula and an amount greater than 35% would be permissible “if based on a specific determination of the recipient’s need…” Id. at 526. Of course, this leads to the question:
What is “need?”
Since the Act, the courts have clarified that “need” is a relative term and must reflect the parties' marital lifestyle in addition to other mandatory considerations contained in § 53(a) (as quoted above). Zaleski, supra at 243. However, the courts have also made clear that judges have significant discretion in setting orders. In the Zaleski case, for example, the Supreme Judicial Court allowed a lower court to find that the parties overspent during their marriage and therefore their “need” was less than the lifestyle they had enjoyed during the marriage. Id.
Court cases since 2012 have also clarified that “marital lifestyle” need is tied to the time-period of the marriage. If the parties have been separated for a period of time prior to the filing of a divorce action, the lifestyle of the recipient spouse during the marriage, and not just during the period of separation, should be a factor in determining the amount of alimony. Steele v Steele, 85 Mass. App. Ct. 1113 (2014, Rule 1:28 decision). Need is not defined by the standard of living a spouse would have enjoyed in the future had he/she remained married to the payor spouse. Young v. Young, 478 Mass. 1, 3 (2017).
What is the correct length of alimony?
Under the Act, rehabilitative alimony presumptively ends in five years, the remarriage of the recipient, or the death of either spouse. Mass. Gen. Laws ch. 208 §50 (2012). General term alimony ends upon the remarriage of the recipient spouse or death of either party, and its duration is capped at certain percentages of the length of the parties’ marriage:
• 50% of the length of the marriage for a marriage of 5 years or less
• 60% of the length of the marriage for a marriage of 5 – 10 years
• 70% of the length of the marriage for a marriage of 10 – 15 years
• 80% of the length of the marriage for a marriage of 15 – 20 years, and
• indefinite duration for a marriage of more than 20 years. Mass. Gen. Laws ch. 208 §49(a-c) [hereinafter §49].
General term alimony orders set under the Act also presumptively end upon the payor reaching full Social Security retirement age. Id. at §(f). The courts have the discretion to order alimony beyond the payor’s social security retirement age, but under one of the first 1:28 decisions released after the Act, the Appeals Court directed that the lower court must clearly explain in writing the reason for ordering alimony past social security retirement age. Green v. Green, 84 Mass. App. Ct. 1109 (2013, Rule 1:28 decision).
Since the Act, the courts have clarified that alimony that is ordered on a temporary basis under a temporary court order does not count towards the maximum duration of general term alimony that a payor may have to pay under the statute. Holmes v. Holmes, 467 Mass. 653, 659 (2014). Under the Holmes case, the court also noted that the duration limits are maximums, and the court has the discretion to order alimony for a shorter duration of time than the maximum duration allowed under the statute. Id. at 660.
The Act also creates a presumption that alimony will be suspended, reduced, or terminated when a recipient spouse has been sharing a common household for three or more months with someone and lists factors that the court should consider in determining how the relationship might affect the alimony order. §49, supra at (f).
When can an alimony order be modified?
Under the Act, the court can modify the duration or amount of alimony “upon a material change of circumstances warranting modification,” “unless the payor and recipient agree otherwise.” Id. at (e). The Act makes clear that existing orders that were non-modifiable or survived still cannot be modified, and this has been reaffirmed by the Appeals Court. Lalchandani v. Roddy, 86 Mass. App. Ct. 819, 822 (2015).
A “material change of circumstances” is not defined specifically in the statute, and is case specific. For example, even in a case where the recipient’s income, or ability to earn income, had increased, the court found that a material change could still be sufficient where the recipient’s need at the time of the modification had increased and was greater than her income, and the payor had increased assets, decreased expenses and was able to pay the additional support. Flor v. Flor, 92 Mass. App. Ct. 360, 364 (2017).
In the same case, the court found that a child’s emancipation and the resulting ending of child support could qualify as a change in circumstances. Id. This was the case even though a child’s reaching “adulthood” is an event that was obviously anticipated at the time of the divorce, but in this case not specifically identified in the Agreement as qualifying as a change in circumstances. Id.
Because the determination of what qualifies as a “material change” is vague, some parties and courts may want to avoid potential returns to court by incorporating a self-modifying order that changes with the parties’ incomes. In the Hassey case, the Appeals Court addressed whether a self-modifying order created by a judge was permissible under the Act. Hassey, supra. The self-modifying provision in Hassey was vacated because:
1) it set up future modifications of alimony that would not be based on a judge’s finding that the recipient’s need, and the payor’s ability to pay, had both increased at the time of each modification, and
2) it only required the payor to disclose his income going forward, and did not take the recipient’s income into consideration. Id. at 527-528.
The Appeals Court took care not to indicate that all self-modifying orders are prohibited. Id. Parties who wish to use self-modifying provisions in their Agreements may do so, but should be careful to ensure that whatever mechanisms they put in place to modify alimony in the future give due consideration to what future need and ability to pay may be, and provide for possible modification if the circumstances change so that the self-modifying provisions are no longer viable. This requires careful and thoughtful drafting.
Do the same rules for modification apply to pre-Act cases?
Section 4 of the Act, which was not incorporated into the General Laws, indicates that the changes to the statute are not sufficient, by themselves, to warrant a material change of circumstances as to the modification of amount. The Alimony Reform Act, supra at §4. However, “existing alimony judgments that exceed the durational limits under section 49 of said chapter 208 shall be deemed a material change of circumstance that warrant modification.” Id.
This means that, in a case with a merged pre-Act agreement for alimony in which the only change in circumstance is the passage of the Act itself, only the duration of that award can be modified and only if the award exceeds the percentage durational limits contained in §49(b). Id.
This ability to modify the duration of pre-Act awards does not apply to the other duration endpoints in the statute. The SJC ruled that pre-Act alimony awards cannot be modified due to the payor reaching full retirement age if the original agreement provided for a later termination date. Chin v. Merriot, 470 Mass. 527 (2015); Rodman v. Rodman 470 Mass. 539 (2015); and Doktor v. Doktor 470 Mass. 547 (2015). While the Act has language presumptively ending alimony when the payor reaches full retirement age, the SJC ruled in these three cases that this portion of the Act does not apply retroactively to agreements approved by the courts or judgments before the Act became effective on March 1, 2012.
Similarly, pre-Act agreements and judgments cannot be retroactively modified to allow alimony to terminate or be suspended pursuant to the cohabitation language in the Act. Chin v. Merriot, 470 Mass. 527 (2015). While these cases limit use of the Act to provide an automatic modification for cohabitation or full social security retirement age, the “material change” in circumstances provisions still apply. This means that if a recipient’s cohabitation reduced their need materially, or a payor’s actual retirement reduced their ability to pay materially, then a modification might still be appropriate. This type of modification would be based on the pre-Act case law, and not the provisions of the new Act. For example, the pre-Act Pierce case contains direction as to how the court must balance a payor’s “good faith retirement” with the other factors relating to support. Pierce v. Pierce, 455 Mass. 286, 28 (2009).
Recent cases have also questioned whether the retroactive application of the duration limits in §49(b) is constitutional. In Van Arsdale and Popp, cases which came down the same day from the SJC in 2017, the court ruled that this option for retroactive modification of duration is constitutional and does not violate due process. Van Arsdale v. Van Arsdale, 477 Mass. 218 (2017); and Popp v. Popp, 477 Mass. 1022 (2017). The court reasoned that the Act only creates a presumption for a certain duration of alimony in each case, not an automatic termination date that applies regardless of circumstances. Id. In each case, the presumption can be argued against by either party, and therefore allows for proper due process. Id.
Because of these differences between pre-Act and post-act cases, it is important to note that modification of pre-Act cases are subject to the pre-Act rules on these issues. This means that a pre-Act Separation Agreement that reserved the right to future alimony but waived past and present alimony is considered a “pre-Act” initial order when seeking future alimony. Flor, supra at 365. Contrast this with the Snow case, in which the initial divorce did not mention alimony at all, and therefore the modification case was treated as an “initial order.” Snow v. Snow, 476 Mass. 425, 429 (2017).
Is alimony tax-deductible to the payor and taxable income to the recipient?
Until the passage of The Tax Cuts and Jobs Act in December 2017, alimony that met the definition in the tax code was tax-deductible to the payor spouse and taxable to the recipient spouse. 26 U.S. Code §71 (2018). This means that for federal tax purposes, across all states, payor spouses have been able to deduct their alimony payments from their gross income, and the tax burden of higher-earning payor spouses has been shifted to recipient spouses in lower income tax brackets. Divorced couples as a unit have thus paid lower income taxes overall to the IRS under this previous tax treatment of alimony.
The Tax Cuts and Jobs Act has ended this “tax benefit” for any divorce or separation instrument executed after December 31, 2018. The Tax Cut and Jobs Act, supra. The tax deductibility of alimony will only remain in effect for divorce instruments that are executed on or before December 31, 2018. Those who already have divorce instruments for alimony, or have them on or before December 31, 2018, can continue to take advantage of the old rule for tax deductibility, unless they expressly state that they want the Tax Cuts and Jobs Act to apply to them. Id.
The waiting period in Massachusetts, (90 to 120 days for the finalization of a Judgment when a Separation Agreement is approved) raises the question of how the IRS will define this December 31, 2018 deadline. No one will know for sure until the IRS weighs in on these issues, but the simplest interpretation of the plain language of the Tax Cut and Jobs Act would suggest that as long as a Separation Agreement is signed by both parties and notarized on or before December 31, 2018, any agreements for alimony should still be tax deductible. The Tax Cut and Jobs Act defines the term ‘divorce or separation instrument’ as:
“(i) a decree of divorce or separate maintenance or a written instrument incident to such a decree,
(ii) a written separation agreement, or
(iii) a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.” The Tax Cut and Jobs Act, supra.
The loss of this deduction for instruments signed after December 31, 2018 will also raise additional questions about the application of the Alimony Reform Act. The formula for capping the general term alimony amount, for example, was written at a time when 30-35% of the difference in income took into account the tax deductibility of alimony to the payor. This cap is much higher when considering the change in tax law, and perhaps will require a stronger focus on the “need” provisions in the Act and subsequent cases.
If nothing else, these questions guarantee the ongoing need for thoughtful mediation of cases, and the promise of future appeals for those who fail to find solutions out of court.
First Published in the MCFM Family Mediation Journal
Justin Kelsey is a Collaborative Divorce attorney and Mediator with Skylark Law & Mediation, PC in Southborough, Massachusetts and is a Vice President of MCFM.
Valerie Qian is formerly an Associate at Skylark Law & Mediation, PC and is starting a new job at the First Circuit Court of Appeals.