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Spousal Support/Alimony

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Determining maintenance is not simply about plugging numbers into a spreadsheet and applying a formula. There is a significant amount of Colorado case law that opens up strategic arguments for each case involving maintenance. Ryan, Amy, Georgina and Samantha have represented less affluent clients seeking support to help them meet their needs. They have also advised clients who are concerned with limiting their financial exposure on a monthly alimony obligation that can add up over time.

As a team, Ryan, Amy, Georgina and Samantha leverage cutting-edge software to analyze the financial issues involved in a case where maintenance is involved. For example, they can calculate the tax effects of maintenance/alimony, budgets depending on inflation or investment returns and provide detailed reports with various scenarios so their clients can intelligently decide if they should settle or go to trial.

Colorado’s Maintenance Guidelines

Historically, judges were allowed a tremendous amount of discretion when considering permanent alimony in a Colorado divorce. Such latitude resulted in unpredictability. The amount and length of maintenance awarded by a judge would seemingly hinge on an arbitrary factor such as the likability of a party. The result was a political push towards a system where maintenance allocations are easier to predict. The Alimony Reform Act of 2011 in Massachusetts was used as a model. After a number of failed attempts using various formulas and language on how a court should apply the formulas, the Colorado General Assembly finally settled on the “advisory guidelines” of House Bill 13-1058 in 2014.

The law contains two significant formulas. The first deals with the maintenance term. There are different policy reasons for alimony in a Colorado divorce. One concept is “reimbursement” to compensate a spouse for supporting the other while in school or start-up phase of a business. Another reason may be “transitional support” to assist someone like a stay-at-home mother as they reenter the workforce. Colorado’s new maintenance law deals with these concepts in a rigid manner by simply providing a table for the suggested length of maintenance depending on the length of marriage. For example, a 3-year marriage results in a proposed maintenance term of 11 months, or 31% as long as the marriage. In contrast, a marriage of 13 years results in a suggested term of 6.5 years, or a maintenance award 50% as long as the marriage.

The second formula applies to the amount of maintenance. Colorado’s new law on permanent spousal support is generally calculated as follows:

40% of higher gross income – 50% of lower gross income

Here are a few examples of how that formula works.

Example 1

Husband’s income is $48,000 or $4,000 per month. Wife’s income is $24,000 or $2,000 per month.

$4,000 x 40% = $1,600

$2,000 x 50% = $1,000

$1,600 – $1,000 = $600 per month in maintenance

Example 2

Wife’s income is $175,000 or $14,583 per month. Husband’s income is $24,000 or $2,000 per month.

$14,583 x 40% = $5,833

$2,000 x 50% = $1,000

$5,833 – $1,000 = $4,833 per month

However, there is a cap on the proposed amount of alimony in Colorado. The guidelines suggest that the maintenance amount should not exceed 40% of the parties’ combined monthly gross monthly when maintenance is added to the recipient’s gross monthly income. Example 2 shows how the cap works.

$14,583 (Wife) + $2,000 (Husband)  = $16,583 in total gross monthly income

$16,583 x 40% = $6,633 is cap

$6,633 (cap) – $2,000 (Husband’s income) = $4,633

Therefore, instead of Husband receiving $4,833 per month in maintenance as suggested by the original formula, Husband will be awarded $4,633 in monthly maintenance if a court follows the guidelines because of the cap.

When Does the Court Award Maintenance in a Divorce?

Before a court even gets into the Colorado spousal maintenance (alimony) guidelines, a threshold test is applied. There are two prongs of the “threshold test” under C.R.S. 14-10-114.

Sufficient Property

First, the court must find that a spouse lacks sufficient property to provide for his or her reasonable needs. This means that a court must divide property in the divorce before turning to the issue of maintenance. If a spouse is awarded an income-producing asset, such as a rental property, they are less likely to need maintenance/alimony from the other party. However, a spouse is not required to sell or consume property awarded to them before being entitled to maintenance.

What does “reasonable needs” mean? It depends on the particular circumstances of each case – an inherently squishy and debatable concept. The standard of living established during the marriage is a relevant factor. A marriage where frequent travel and fine-dining were enjoyed is different than a spartan one. The reasonable needs will be based on the present circumstances at the time of the hearing rather than the past or future conditions.

Spousal maintenance is to provide the means to obtain food, clothing, habitation and other necessities. Colorado courts have taken a fairly expansive view of “reasonable needs,” and stated that it does not mean the minimum requirements to sustain life. Nevertheless, a court is not required to ensure spouses have an equal lifestyle forever.

The totality of the parties’ financial circumstances will also be considered. If a spouse is the beneficiary of a trust, that may be considered even though the trust is not “property” under Colorado law. The reasoning behind this rule is easy to understand – a party doesn’t need maintenance/alimony if they’ll be perfectly fine on their own.

Appropriate Employment

If property awarded to a spouse is insufficient to provide for their reasonable needs, the court will move on to the second part of the threshold test: employment. A person won’t need maintenance/alimony if he or she can support themselves on their own. Again, each case is different.

The court will determine what is “appropriate employment” for a spouse requesting an award of maintenance. The expectations and intentions established during the marriage will be considered along with the age, education, work history, health and of the requesting spouse. A court will also take into account if a person is voluntarily underemployed or completely unemployed. A famous Colorado divorce case (In re the Marriage of Elmer) involved an attorney that voluntarily quit practicing law and decided to pick apples at $10/hour. The court imputed income to that party based on his higher earning capacity.

The above is a brief summary concerning Colorado’s “threshold test” for awarding maintenance/alimony in a divorce. There are a number of other factors that a court will consider in a Colorado divorce where a party is requesting spousal maintenance.

What is “Income?”

Now we turn to “income,” a benign term that on its face appears to be relatively simple. As detailed below, determining income for a party in a Colorado divorce can be complicated.

Before the recent amendments to Colorado’s law on maintenance, C.R.S. 14-10-114, it was unclear how a court should determine income for cases where long-term, i.e. permanent, maintenance was requested or the parties annually made $75,000 in total. Colorado divorce attorneys relied on inferences in the maintenance statute to the more specific definition of income for child support and cases such as In re Marriage of Swing. And even relying on the definition of income for child support proved to be problematic when a party was self-employed or was part of a partnership or closely-held corporation.

Fortunately, however, the General Assembly clarified what exactly is “income” in determining both maintenance and child support in Colorado. Starting on January 1, 2014, the amount of income that is used in the Child Support Worksheet or Maintenance Guidelines is the same.

The first concept that must be understood is the difference between gross and net income. Gross income is before taxes and deductions like health insurance or 401(k) contributions are taken out. Net income is the money left after taxes and deductions; the amount a salaried employee gets if they do direct deposit. In Colorado, gross income is what matters for maintenance and child support.

“Gross income” includes the following:

  • Income from salaries
  • Wages
  • Tips declared to the IRS or imputed by the court
  • Commissions
  • Payments received as an independent contractor
  • Bonuses
  • Dividends, capital gains, trust distributions, annuity payments and interest
  • Rents
  • Social security, workers comp, and disability benefits
  • Gifts, including from family members
  • Expense reimbursements or in-kind benefits such as free housing, food, transportation, etc.
  • Moneys drawn by a self-employed individual for personal use that are deducted as a business expense

The above is not an exhaustive list. And income does not include child support payments received, or money received from additional jobs or work beyond 40 hours per week.

Things get tricky when a party is self-employed or involved in a partnership or closely-held business. Generally, income for someone self-employed or an owner of a small business is calculated by taking the gross receipts/revenue and subtracting “ordinary and necessary expenses.” That last term is where parties frequently disagree on whether an expense is a legitimate business deduction. The debate doesn’t end with a cursory review of a tax return.

People frequently run much of their personal expenses through their business because the risk of an audit by the IRS is somewhere in the neighborhood of 1%. For example, a self-employed project manager may deduct his entire monthly cellphone bill or gas expenses even though he undoubtedly uses his cell phone for personal use, or drives up to Aspen on a weekend to ski. He may not get caught by the IRS, but a competent Colorado divorce lawyer will successfully argue that his income is higher for analyzing maintenance and child support.

Finally, the amendments to Colorado law clarify how income is determined for a “silent partner” or someone that owns part of a business, but isn’t a manager. In that scenario, income for maintenance and child-support purposes may be limited to actual cash distributions. That income may be lower than merely taking the gross revenue of the company and reducing by ordinary business expenses.

Imputed Income to an Unemployed or Underemployed Spouse

Voluntary unemployment is when an award of spousal maintenance or child support is based on imputed income that is not actually being earned by a parent or former spouse. The same concept applies whether the person is completely unemployed or working below their true earning capacity, i.e. “underemployed.” Voluntary unemployment frequently comes up in Colorado divorces where maintenance is at issue or any case involving child support.

Both parents are obligated to support their children. If one parent isn’t earning as much as they could, the child suffers. A party may lack the initiative to find or keep work. They may be purposefully turning down work to spite the other party. Whatever the reason, they are shirking their obligation to support the child. The policy of spousal support vis-a-vis maintenance (alimony) is no different.

Examples

The dispute comes down to (a) whether a parent is making less than what they should be, and (b) what is the potential income for the parent. A few examples may help.

  • In re Marriage of Bregar – court imputed income to former lawyer who had started a cattle ranch.
  • In re Marriage of Yates – imputed income based on former pay rate when father was involuntarily terminated from job, but turned down jobs that required travel.
  • In re Marriage of Elmer – licensed attorney imputed income because he decided to pick apples at $10/hour.
  • In re Marriage of Zisch – mother with teaching certificate was imputed income even though she testified that she was actively looking for a full-time teaching position.

Exceptions

Under Colorado law, there are a few notable situations where a court cannot impute income based on a parent or former spouse being unemployed. These exceptions are listed below:

  1. A party is physically or mentally incapacitated.
  2. A parent is caring for a child under the age of 30 months.
  3. A parent that is in prison for 1+ years.

Similarly, a party will not be underemployed if:

  1. They’re working in a position that is temporary and reasonably intended to result in higher income in the foreseeable future; or
  2. They’re job is a good faith career move that isn’t intended to deprive the other party of child support. The lower position cannot unreasonably reduce the support available to a child; or
  3. They’re in an education program that will likely result in higher income within a reasonable period of time.

Calculating Imputed Income

Colorado law is fairly specific in determining a party’s income. How should a court calculate income when a party is unemployed or underemployed? Case law suggests that a court can use past earnings, education level, or wages of an average person with similar qualifications in finding the appropriate amount of income for calculating child support or maintenance.

Colorado divorce attorneys have multiple arrows in their quiver when handling a case involving allegations of underemployment or unemployment. Using employment statistics from the department of labor or formal discovery requests can break a case. Familiarity with the judge presiding over the case will drive the strategy behind the presentation of evidence and line of argument.

If you are searching for experienced, creative, and effective legal counsel, call a member of the RKV Law Domestic Relations Team to discuss your situation.

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