Understanding Alimony in a High Income Divorce

Divorce Spelled in Dice Over Money with Gavel

Divorce is an emotional experience for any couple, and the financial aspects of it create anxiety. This is true no matter your tax bracket, but dealing with money becomes especially stressful in a high income divorce. In this situation, you want to make sure all your bases are covered regarding alimony. This will help you avoid costly problems later.

In this article, we discuss what you need to know about alimony in a high income divorce, including the types of alimony available in Nevada.

Overview of Alimony and Its Purpose

Alimony, also known as spousal support, is a court-ordered, financial payment from one spouse to another after a divorce. The goal is to give the lesser-earning spouse financial assistance. This helps them transition into their new, single life.

Alimony is there to alleviate the financial burden of the lower-earning spouse, allowing them to maintain their standard of living. The amount and duration of alimony varies depending on several factors. These include:

  • The length of the marriage
  • The special needs of either spouse
  • The earning capacity of each spouse
    • You must consider each person’s age, work history, mental and physical health, education, the job market, and so on.

Types of Alimony in Nevada

Nevada generally recognizes three types of alimony: temporary, permanent, and rehabilitative.

Temporary alimony helps one spouse during the divorce. It keeps them stable until the divorce is finalized.

Permanent alimony is exactly what it sounds like. It lasts until either party dies or the receiving spouse remarries.

Rehabilitative alimony lasts for a specified length of time. It is meant to keep the receiving spouse financially stable while they work on becoming self-sufficient.

Difficulties with Alimony in High Asset Divorces

In high income divorces, determining an appropriate amount of alimony is challenging. It can be hard to distinguish between marital and separate assets, as property is often entangled in high asset families.

Another challenge is determining the standard of living that the lower-earning spouse is entitled to. The paying spouse could, theoretically, spend a good deal of money on alimony, and these payments wouldn’t significantly harm their overall worth. A judge must decide if it’s fair for the payor to meet only the bare minimum or give more.

Additionally, high net worth families may have complex business structures, investments, and assets that are difficult to value. The court must consider all these factors to calculate a fair and reasonable amount of alimony.

Ways to Reach an Alimony Agreement in a High Net Worth Divorce

  • You can use a financial expert to analyze the various assets and sources of income. They can then help determine a spousal support payment that makes sense.
  • Mediation can be a powerful tool that helps parties communicate and determine a mutually agreeable solution.
  • In some cases, a hybrid approach - including both financial analysis and mediation - can be the most effective path forward.

Ultimately, your goal should be to find an approach that works for both parties. This often begins with an honest conversation. Each partner should outline what they will need to maintain their standard of living. Then, you can work backward from there to find an amicable solution.

Avoiding Changes to an Alimony Agreement

Unforeseen circumstances can impact any alimony agreement. The best way to avoid these changes is to be specific and detailed when creating one.

This means clearly outlining the terms of the agreement, including:

  • The terms of payment
  • The duration of the agreement
  • Any conditions that could terminate the agreement

You should also consider potential changes to income, including:

  • Changes in living situations
  • Potential career changes, both positive and negative

By taking these precautions, you can minimize the risk of surprises or disputes and keep your spousal support plan in place.

Tax Implications on Alimony in a High Net Worth Divorce

You should always consider whether alimony payments are deductible for the payer and taxable for the recipient. The rules will vary from state to state.

In Nevada, The Tax Cuts and Jobs Act of 2017 made significant changes. For divorces finalized after December 31, 2018, alimony payments are no longer deductible for the payer and no longer taxable for the recipient. People with high assets may feel a greater financial impact from these new regulations.

If you are going through a high net worth divorce in Nevada, you must consult with a knowledgeable divorce attorney who can guide you through the process. Ford & Friedman is here to help. To consult with our team, set up time with us online or call our office at (702) 904-9898.