• calendar30th Jun 24 10:00 pm
  • userJamie

Alimony Considerations In High Net Worth Divorces: Myths And Facts

Colorado refers to alimony as “spousal maintenance,” and this is just one of many important subjects to consider when approaching divorce. The financial implications of spousal maintenance may be of particular interest to high-net-worth individuals, as they may pay – or receive – far more than average Colorado residents. Each year, there are numerous stories of celebrities and business leaders paying staggering sums in spousal maintenance. Depending on the circumstances, the prospect of alimony could be promising or highly alarming. Whatever the case may be, it is helpful to dispel various myths regarding high-net-worth alimony. Of course, spouses should also familiarize themselves with the facts. Book a consultation with the Colorado Divorce Law Group today to continue this discussion in more detail. Call (720) 593-6442 to get started.

 

Fact: Alimony Is Not Automatic

 

Alimony is not automatic. Not every divorce leads to alimony, and spouses must meet very specific conditions to become eligible for these payments. Even if a spouse earned much more than their ex during the marriage, alimony is far from guaranteed. To determine whether alimony is necessary, spouses should consider numerous factors – and not just their income. For example, a spouse may not have worked a single day throughout their multi-decade marriage. However, this individual may have inherited tens of millions of dollars. They might have received continuous distributions from a spendthrift trust. Perhaps they entered the marriage with shares in startup companies that have skyrocketed in value. These are the kinds of factors family courts may consider when approaching alimony in high-net-worth divorces.

 

That being said, income disparity often leads to alimony in Colorado. For example, a spouse might earn a six or seven-figure salary as a corporate executive while their partner remains at home. This is a classic example of when alimony is usually necessary. The logic is that without alimony, the stay-at-home spouse would encounter serious financial pressures due to the sudden loss of income brought about by divorce.

 

Myth: Alimony Is Always Permanent

 

Alimony does not necessarily last forever. In fact, permanent alimony is becoming increasingly rare in Colorado. While a few jurisdictions have abolished permanent alimony altogether, this outcome is still possible in the Centennial State.

 

For divorcing spouses who have spent decades together, permanent alimony is more likely. As the name implies, this type of alimony may last until the paying spouse dies. However, family courts often use the term “permanent” loosely – and permanent alimony may end after a set term. High-net-worth spouses may attempt to modify alimony agreements after significant changes in circumstance. The obvious example is retirement, but any other life event that reduces income may also justify the reduction or cessation of alimony.

 

Fact: The Length of Your Marriage Is Important

 

The general rule is simple: The longer a marriage lasts, the longer alimony will last. Specifically, a spouse can expect to pay alimony for half the duration of their marriage. For example, a marriage that lasts seven years might lead to 3.5 years of alimony. Marriages that last only a few years typically do not lead to any alimony whatsoever. In contrast, marriages that last for decades may lead to many years of alimony payments.

 

Myth: Alimony Always Follows a Standard Procedure

 

When spouses have a combined gross annual income of more than a certain amount, Colorado does not follow the same standard alimony procedure that applies to lower-income individuals. Instead, family courts take a more nuanced approach, attempting to understand the complexities of the high-net-worth marital estate in Colorado. The exact threshold for high-net-worth spouses changes over time due to inflation, but it generally involves mid-to-high six-figure annual earnings. Speak with the Colorado Divorce Law Group for the most up-to-date information from the Colorado Legislature.

 

Despite this nuanced approach, family courts may still consider the same standard factors when approaching high-net-worth alimony. These include income, distribution of marital property, age, health, educational needs, and non-economic contributions. However, the family court may also consider other factors only associated with high-net-worth individuals. These might include complex assets, trusts, businesses, corporate loans, shareholder agreements, stock options, offshore accounts, and more. Each high-net-worth estate is slightly different, and family courts examine each one on a case-by-case basis.

 

Fact: Your Standard of Living Matters

 

The standard of living enjoyed by both spouses during a marriage is an important consideration when approaching high-net-worth alimony. Colorado alimony laws include terms like “lifestyle” and “reasonable needs,” referring to the various luxuries a high-net-worth individual may have enjoyed during their marriage. The “reasonable needs” of a wealthy individual may be vastly different compared to those of a low-income individual. For example, a spouse may have grown accustomed to luxury vehicles, lavish vacations, and mansions during the marriage. Family courts may consider this lifestyle when approaching the question of alimony during a high-net-worth divorce.

 

Myth: Alimony Is Tax-Deductible

 

High-net-worth individuals are often financially savvy, and they may be very wary of tax implications when approaching divorce. If a spouse faces the strong possibility of paying alimony, they may assume that these payments will at least be tax-deductible. For many years, this was true in Colorado – but the laws changed in 2019 with an announcement by the Colorado General Assembly. Today, the system is skewed in favor of the recipient, not the payor. While the payor cannot deduct alimony as a tax expense, the recipient does not pay any income tax on the alimony they receive. Alimony is not tax-deductible, and it does not count as taxable income.

 

Contact the Colorado Divorce Law Group Today

 

High-net-worth individuals face unique challenges during divorce. Often, these spouses have specific, personalized goals in regard to alimony – and a simple online article may only provide surface-level insights. For a more targeted approach to alimony, property division, and other aspects of divorce, speak with an experienced family law attorney in Colorado. During an initial consultation with the Colorado Divorce Law Group, a spouse can discuss their financial situation in more detail – including investment portfolios, trusts, businesses, inheritance, and more. A Colorado divorce lawyer can formulate a targeted alimony action plan based on these factors. Call (720) 593-6442 today to book a consultation.