Pasternak & Fidis Reporter

July 19, 2018

Alimony Ends When Payor Spouse Retires . . . Or Does It?

Family lawyers are increasingly hearing from divorced clients who are getting ready to retire or have retired and who have a spousal support obligation or a right to receive support under a court order.  A court order may result from a trial or as part of a settlement agreement adopted by a court in the judgment of divorce.  Some payors think alimony payments automatically end at retirement, or that a court will decide to terminate payments at retirement as a matter of course, but this is not necessarily so.

Court-ordered spousal support terminates automatically only on the death of either party or—in Maryland and Virginia, but not the District—upon remarriage of the recipient.  When a court orders indefinite spousal support, i.e., support without a predetermined duration, or when parties enter into a court-adopted settlement for indefinite spousal support, a payor must petition a court to reduce or terminate alimony.

Standard for Modification of Indefinite Alimony.  In Maryland, Virginia, and DC, a court may modify indefinite alimony if a party proves a “material change in circumstances” since the award and that a modification is justified.  The trial judge has broad discretion to decide whether a change in circumstances, such as retirement, is material and whether it warrants a modification of alimony.  When a payor files a petition, unless the parties settle, each will incur substantial legal fees for an uncertain outcome.  From the perspective of a payor, the prospect of having to pay alimony after retirement may be shocking, especially when he or she will be living on retirement benefits that were divided with the former spouse at divorce.  At the same time, a former spouse who got indefinite alimony, and who never expected to be self-supporting, may be shocked to find out that support he or she has come to rely on may end, especially if he or she did not build up any assets after the divorce to create additional income.

Virginia’s New Code Provision.  In Maryland and DC, there are no statutes that specifically address modification after retirement.  As of July 1, 2018, the Virginia Legislature has weighed in and this may herald similar statutory amendments elsewhere.  New Section 20-109 (E) of the Virginia Code provides that a payor who reaches “full retirement age” shall be considered to have a material change in circumstances.  “Full retirement age” is the normal retirement age when a person is eligible to receive full Social Security retirement benefits.

Normal Retirement Age.  An individual can start receiving Social Security benefits as early as age 62 or as late as age 70.  Normal retirement age under Social Security is no longer 65; rather it is between 66 and 67 depending on date of birth.  For example, if you were born between 1943 and 1954, normal retirement age is 66.

Factors Courts Consider.  Trial courts in all three jurisdictions must consider several factors to determine whether an alimony modification is warranted.  These include the parties’ incomes, financial circumstances, and age and health.  In a case where retirement is the triggering event, Virginia’s new Code provision requires a court to consider:

  • whether retirement was contemplated by the court when spousal support was awarded;
  • whether retirement is mandatory or voluntary;
  • whether the retirement would result in a change in each party’s income;
  • the age and health of the parties;
  • the duration and amount of spousal support already paid; and
  • the assets or property interests of each of the parties during the period from the date of the support order to the date of the hearing on modification or termination.

Effect of the Payor’s Retirement.  When a payor retires, his or her income may be significantly reduced.  If the payor reaches full retirement age, or retires involuntarily, such as for medical reasons or being forced out of a job, then a court may consider it reasonable to reduce or terminate spousal support.  A court may not find it reasonable for a payor to voluntarily retire before age 65 and expect to get a reduction.  As noted above, a court must weigh a variety of factors.  Even if a payor’s decision to retire was reasonable, and at an appropriate age, a court may decide only to reduce the amount of alimony, but not terminate it.

Receiving Spouse’s Circumstances.  When a recipient was employed at divorce or was expected to go back to work after divorce, he or she may also be at a normal retirement age, or close to it, when the payor retires.  Like the payor, a recipient’s income may also be significantly reduced at retirement.  A court must weigh each party’s circumstances to determine the reasonableness of the request, including what retirement benefits each party will have.

Planning for Retirement in Negotiating Divorce Settlements.  To avoid having to return to court, in cases calling for alimony, it is best to deal with retirement and the specifics of a future modification after retirement in a settlement agreement.  Both parties will then have a predictable outcome when the payor retires.  Parties can consider:

  • Termination events. These generally will include death of either party, and remarriage of the recipient, and can also include retirement of the payor, cohabitation of the payee in a marriage-type relationship, and completion of a set duration of payments.
  • Offsets. Parties often agree to divide a pension at divorce; they could agree that alimony terminate upon receipt of a pension or that the amount of support be offset by the pension.  A former spouse may also be eligible to receive Social Security benefits which parties could agree would reduce the amount of alimony.  Parties entering into a settlement can also build in a disaster clause to provide for reduction if a payor has an involuntary reduction in income, e.g., for medical reasons, a job loss or a forced retirement.
  • Lump sum cash payment or property transfer. Parties could agree to a lump sum cash payment, or to a transfer of an income-producing asset, such as an IRA, over the presumed equal division of assets, in return for a termination of support at retirement.  The recipient could use these additional assets to invest for the future to create additional income after retirement.

Conclusion:

Alimony claims are challenging for divorcing couples and their lawyers.  They are fraught with uncertainty as there are no objective standards to set an initial award or to predict a likely outcome of a future claim for modification.  A trial court has wide discretion once a material change in circumstances has been proven to decide whether to modify or terminate alimony.

With many people facing retirement, the courts are likely to see an increasing number of motions to modify.  Just as it is critical to plan for retirement, parties to a divorce where support is warranted need to include in their settlement discussions a plan for the support obligation at retirement.  Working with counsel to address these issues in settlement is critical.