What Financial Obligations Exist After Divorce?
After the divorce is final, financial obligations between spouses may continue. One spouse may have to pay the other on a monthly basis for spousal maintenance or child support payment. Or, a spouse may be required to maintain insurance for the benefit of the former spouse. There may also be credit issues, tax issues, or other financial issues that will continue to affect you following your divorce. The following sections describe potential circumstances of continued financial obligations after the dissolution of the marriage is final.
Spousal Maintenance, a.k.a. Spousal Support or Alimony
What is spousal maintenance?
In Washington, spousal support (or alimony) is called spousal maintenance. This money is paid by one spouse to the other. It can be ordered to last for a few months, or indefinitely. It can be ordered to be paid on a monthly basis, in a lump sum, or a combination thereof. Maintenance can have significant tax implications for the spouse paying maintenance, and for the spouse receiving it. As such, it is often important that you speak with a tax professional as well as your family law attorney regarding this issue.
When is spousal maintenance awarded?
Spousal maintenance will not be awarded in every divorce case. To understand when maintenance will be ordered it is important to understand the purpose of maintenance. Maintenance is intended to help equalize the financial situation of the parties. Thus, a considerable disparity in incomes of the spouses is usually required before maintenance will be awarded. Either spouse may be required to pay maintenance.
In determining whether maintenance is proper in a given case, the court will consider the need of the party requesting maintenance and the ability of the other party to pay maintenance. All "relevant" factors are considered; this includes but is not limited to, the financial resources and obligations of you and your spouse, your standard of living during marriage, the length of your marriage, and your age and health. It is not necessary for a spouse to be unemployed or underemployed to be awarded maintenance. However, the court will consider whether the spouse needs further education or accreditation to improve his or her employment opportunities, thus being able to afford life without maintenance. Marital misconduct, or "fault," does not play a role in determining an award of maintenance.
After reviewing all relevant factors, the court will award maintenance for such duration and amount that the court deems just. The judge has considerable discretion in determining a maintenance award. This makes maintenance less predictable than other areas of divorce law. Parties can increase predictability by mediating or negotiating with each other and their family law attorneys to resolve any maintenance issues.
Does the length of my marriage matter?
The length of your marriage can have an impact on maintenance. Namely, it can affect whether maintenance is ordered, and how long the maintenance will continue.
In many cases, the longer the marriage is the more likely it is for maintenance to be awarded. And, in a long-term marriage, of twenty-five years or more, a court is more likely to award maintenance for a longer duration, perhaps indefinitely. In determining maintenance in long-term marriages, the court looks forward. It attempts to equalize the parties for the rest of their lives. However, in some long-term marriages the assets accumulated during the marriage are quite substantial, so that a lopsided award of assets would permit a balancing of the positions without (much) maintenance.
In a shorter marriage, of fewer than ten years, a court is likely to order maintenance of a shorter duration, or not at all. In these cases, the court is looking backward, attempting to put the parties in the respective economic positions they would have been in had the marriage not happened at all
In marriages of between ten and twenty five years, the court may or may not award maintenance after considering all relevant factors. Ultimately, the economic circumstances of each spouse are of paramount concern to the court when deciding to award maintenance.
In marriages of any length, if you or your spouse is unemployed as you begin your divorce proceedings, the court is likely to award some kind of temporary or rehabilitative maintenance to help you survive economically while you find a job. This temporary maintenance usually lasts through the pendency of the divorce.
Will spousal maintenance continue if my spouse dies?
Usually maintenance will not continue after the death of a spouse. To alleviate this concern, and protect your future, it may be wise to request that the court order the spouse who pays maintenance to carry life insurance (designating the other spouse as the beneficiary) to guarantee future payments. The same method can be used to guarantee child support payments.
Can I modify spousal maintenance?
Unless there has been an agreement to the contrary, any order of maintenance can be modified. When deciding whether to modify maintenance, the court must determine whether there has been a "substantial change of circumstances." And, more specifically, that the substantial change in circumstances was not contemplated by the parties at the time the decree was entered. Parties can also request the court order an agreed modification of maintenance.
If no spousal maintenance is awarded at the time of the divorce, the decree cannot be modified to award it later.
When does spousal maintenance end?
In most cases, the obligation to pay maintenance ends upon the death of a spouse, on the remarriage of the spouse receiving maintenance, or when it is ordered to terminate by the decree. In addition, maintenance may be terminated by agreement of the parties or by court order.
When a divorce is finalized, you are no longer eligible for dependent coverage on your spouse's health insurance plan. Under federal law, you are entitled to continue health insurance coverage under COBRA for up to thirty-six months after your divorce is finalized. However, your plan will be changed from "family" to "individual," and your rate may increase. COBRA benefits are intended to be temporary, and you should look into other options for health insurance immediately.
In some cases, a spouse paying spousal maintenance may also be required to provide health insurance for the former spouse.
Can the divorce require one spouse to carry life insurance?
Yes. In cases where spousal maintenance or child support is ordered, it may be wise to ask the court to require the paying spouse to maintain life insurance (designating the other spouse as beneficiary in maintenance cases, and the child as beneficiary with the parent as trustee in child support cases) to guarantee payment of the support in the case of the death of the paying spouse. The policy needs to be maintained until the support obligation is fulfilled. It is usually ordered that the premiums be paid by the person paying support. The court may consider the cost of premiums when determining the amount of support.
How can I remove my spouse as beneficiary of my life insurance?
Following divorce, you may choose to divest your spouse of designated beneficiary rights under your existing life insurance policy. In addition, a former spouse's right as a named beneficiary of a non-probate asset (i.e. pension plan or life insurance) is automatically terminated by law upon the dissolution of marriage (RCW 11.07.010).
When the dissolution process is completed, and your divorce is finalized, all provisions in your will regarding your former spouse will be automatically revoked unless your intent is clearly stated otherwise in the will itself. As such, if you wish for your former spouse to remain in your will after your divorce is finalized, you should amend your will to make that intent explicit.
Your will can include your preference for your minor children's guardian. This provision does not guarantee that a particular person, other than your former spouse, will become your children's guardian. In that instance, a later probate court would decide the issue.
It may be possible for you to collect retirement benefits on your former spouse's social security. The following must apply for you to qualify:
- The marriage must have lasted at least ten years. (You may also qualify, despite a shorter marriage, if you are caring for your former spouse's natural or legally adopted child who is under 16 or disabled, and who is receiving benefits on the record of your former spouse.)
- You must be at least 62 years old, or you must be at least 60 and your former spouse is deceased.
- You must be unmarried. You are not entitled to any of your former spouse's social security benefits so long as you are remarried. If, however, your subsequent marriage has ended (whether by divorce or death), you are again eligible for your first spouse's social security benefits.
- Your former spouse must be eligible for or currently receiving benefits, or you must have been divorced at least two years.
If you qualify, then your social security amount will be 50% of your former spouse's benefits, or 100% of your own benefits, whichever is greater.
Note that the amount you, as a divorced spouse, receive in social security benefits has no effect on how much your former spouse receives.
Credit Score Effects
Is my credit score affected by my spouse's debts?
Your credit file contains payment data from any credit cards and loans you had individually, as well as those you shared jointly with your spouse. Your credit file should not contain any data from loans that your spouse had individually. Thus, after divorce, you will apply for mortgages and loans based on your own credit history, and your former spouse's credit score should not affect yours.
After divorce, can my former spouse's actions hurt my credit?
Yes. Your own credit score may be affected after divorce if you still have joint debts and your former spouse misses payments on the debt. The divorce court cannot alter a pre-divorce relationship between you and a third party (such as a mortgage lender). So, even where the divorce court assigns a joint debt to be paid by your spouse, if your spouse does not pay the debt, then the creditor can ask you to pay it, sue you to force you to pay it, and report nonpayment to the credit bureaus. This is only true of joint debts. However, there are things you can do to protect your credit after divorce. See below.
What can I do to protect my credit after divorce?
If there will be marital debt remaining after your dissolution is finalized, you should consider taking proactive steps to protect your credit. The following are ways to reduce the risk to you credit:
- Review your credit report. Then, review your spouse's credit report. Create a list all debts: joint, yours separately, and your spouse's separately. Report any inaccuracies to the credit bureaus.
- Ask the court to assign the separate debts of each spouse to that spouse. If your spouse is instead assigned a debt that belongs to you, and your spouse does not pay it, then the creditor will have the right to seek payment from you.
- Include an indemnification clause in your property division. This provision requires that if one spouse is harmed because of the other spouse's nonpayment, then the court can award reimbursement to the harmed party. Note that the indemnification offers only money damages. So your credit may still be damaged. A spouse's failure to pay a debt, even when you are indemnified, can still affect your credit, but the indemnification may prevent them from wanting to fail to pay because of the threat of having to pay you money for any harm their failure to pay causes Rarely, a court will order the other party to compensate you for the damage the failure to pay caused to your credit. Unfortunately in addition to being rare, seeking this kind of order is costly and time-consuming.
- Make paying off all joint debts, or refinancing them into only one person's name, a priority during the divorce process. For credit cards, this means paying them off and closing the accounts. For real property, such as the house, this may require one spouse to execute a quitclaim or bargain and sale deed on the property and for the person keeping the property to refinance the mortgage. The less debt you share after divorce, the less at-risk your credit is from your spouse's potential malfeasance.
- With joint debt, you may want to make a payment in place of your spouse to avoid credit consequences.
- Bankruptcy of one spouse after the marriage can make that spouse no longer liable for the joint debts assigned to them in the divorce decree. In that case, the third party creditor can come to the other spouse asking for payment. If you think your spouse may file for bankruptcy before all joint debt is repaid, discuss this with your lawyer as soon as possible. More on bankruptcy and divorce is discussed in the next section.
Bankruptcy and Divorce
It is unusual for divorce not to be expensive in one way or another. Unfortunately, divorce often takes a toll on the assets available to either or (usually) both spouses. This may cause one or both party to file for bankruptcy while the divorce is pending, or after it is final.
Bankruptcy is an action filed in federal court. At the time a bankruptcy is filed in bankruptcy court, that court will order an "automatic stay," or suspension, of all creditor judgments and collections. This means that a divorce court's property division order could violate the bankruptcy court's automatic stay. For this reason it is vital that your attorney monitors whether the other party files for bankruptcy while your divorce is pending. The filing of a bankruptcy action in federal court trumps your dissolution action.
If a bankruptcy is filed by one spouse after the dissolution is final, it can still have impacts on your financial situation. If the property division required that your spouse pay part of the joint debts, but the debts remain in both of your names, you may be liable for the debt if your spouse is given bankruptcy relief. You should advise your attorney if you think your spouse may be considering bankruptcy prior to dissolution or after. This may change the way you and your attorney choose to structure a property settlement agreement, or what you request in court.
Child support and spousal maintenance are not discharged by bankruptcy.
Taxes and Divorce
How can I time my dissolution proceedings for the best tax consequences?
In some circumstances it is advisable to speak with your family law attorney and a tax professional regarding the best time to enter your divorce decree. It may be financially beneficial for you to wait to file your final dissolution documents, so that you can file your taxes with married status for an additional tax year.
While my divorce is pending should I file my taxes married or single?
If spouses are legally married on the last day of the year, then they should file their taxes for that year as married. It follows that if spouses are legally divorced on December 31st they should file single, no matter how much of that tax year they were actually married. For example if you finalize your dissolution of marriage on December 2nd of a year, then even though you were married for eleven of twelve months, you will file as single for that tax year.
Should divorcing spouses file jointly or separately?
As stated above, if your dissolution of marriage is not finalized prior to December 31 then you and your spouse must file as married. Divorcing spouses must then decide whether to file joint taxes or separate taxes. Married couples with disparate incomes are usually best served by filing joint returns. But, when a married couple has similar incomes (especially when they are high incomes), it is often better for them to file separately. It is important that people are aware that some tax benefits of marriage will not be available to spouses that file separately. This may include the dependent or child care credit, earned income credit, adoption credit, and education credits including the student loan interest deduction. A spouse filing separately has only half of a joint-filer's child tax credit, itemized deductions, standard deductions, retirement savings credit, and personal exemptions. In such cases, a separate filer's capital-loss deduction is limited to $1,500.
Will tax liabilities from former returns continue?
When spouses file their taxes jointly, they will generally share liability for taxes that remain owed. This includes liability for failing to report taxes. Some spouses may qualify for "innocent spouse" status and avoid liability if the spouse proves certain factors, including that the spouse didn't know of the tax understatement. In limited circumstances, you can also avoid tax liability if you are no longer married or living with your spouse.
Who gets to claim our dependent children as tax exemptions?
IRS regulations determine which spouse is eligible to claim your children as dependents on your taxes and receive the dependent tax exemption. Under IRS regulations, the qualifying parent is defined as the "custodial parent," which is "the parent having custody for the greater portion of the calendar year." The declaration within the parenting plan of who is the "custodial parent" does not change the definition under IRS regulations for tax purposes. The term "custodial parent" is defined differently by the IRS and the parenting plan. It follows, that you might be the custodial parent under one definition, but not the other.
In practice this technicality is not as complicated as it sounds. The divorce decree should provide a provision stating which parent will receive the exemption, or that both parties will share the exemption. If the parent taking the exemption does not qualify as a custodial parent under the IRS definition, then the other parent must sign a written declaration that will be submitted with the non-qualifying parent's tax return, permitting that parent to claim the exemption. The parent receiving the exemption will also receive the child tax.