Establishing alimony orders in a divorce case can be difficult enough without the economic and practical uncertainties due to COVID-19. The following considerations may be helpful to your practice when dealing with the establishment or modification of alimony orders:
September 22, 2020 Alimony
Considerations for Establishing Alimony in a COVID-19 World
By Brittany Ranson and Andrea Cozza
1) Dealing with Reduction in Income:
a. State and Federal Benefits: Evaluate a party’s reduction of income claim carefully. Take time to understand the various forms of income, payments, or benefits that have been received or may be available to a party through state or federal COVID-19 assistance. For instance, even if COVID-19 has resulted in a party’s job loss, unemployment compensation may be increased or in some states extended to include independent contractors and other workers who are ordinarily ineligible for unemployment benefits.
b. Business Owners/Self-Employed Persons: For struggling business owners, look to see if economic relief has been sought from new temporary programs from entities like the Small Business Administration who are offering various relief like the paycheck protection program, EIDL, SBA Express Bridge loans, or SBA debt. Remember, many forms of small business relief are also available to independent contractors. Discuss with your client the ongoing or one-time nature of certain COVID-19 relief and whether funds may need to eventually be repaid. If your court typically utilizes an average over a three to five-year period for business income and expenses, consider whether a historic income approach or current income analysis is more beneficial for your client in light of current circumstances. Find out how 2020 business expenses may be impacted and obtain needed documentation to determine those expenses in light of reduced or increased income. For instance, if entertainment/meals or travel expenses have historically been deducted at maximum amounts by the payor spouse determine what impact social distancing and other guidelines may have to reduce those costs in 2020 or going forward. Exclusion of certain temporarily reduced expenses could result in a greater net income than would otherwise be calculated. Alternatively, if the business is spending more on supplies (hand sanitizer, masks, etc.) that historically were not purchased that may need to be factored in as well.
c. Analyze Cause: Closely review variable income (such as bonuses, commission or overtime) to determine whether it is appropriate to include these sources in income calculations based on the facts at hand. If there are significant differences from prior years –understand why. In cases where COVID-19 may significantly reduce a party’s ability to earn bonuses, commissions, or overtime at past amounts, consider arguing to exclude these sources in the calculation of income. Find out whether there is documentation to assist in presenting your case to the court. For example: Do the regular pay statements clearly show the change in overtime consistent with the COVID-19 pandemic? Are there clear communications from the employer stating that overtime is terminated or reduced? To the contrary, if production is increased, has the company indicated that hours are increasing only temporarily to meet a specific demand, etc.?
d. Anticipated Employment Status and Changes: Have discussions with your client about the future certainty or uncertainty of their job situation. For example, whether she has received communications from the employer regarding the security of her employment position or data provided to employees on the company’s overall performance during the pandemic. On the other hand, perhaps the paying spouse is just starting to see a decline in income or overtime pay, but it is not yet substantive or consistent enough to impact the support order at the time of final hearing. Consider case law in your jurisdiction and whether knowing of the decline at the time of agreement will impact the ability to modify in the future. Consider, based on your jurisdiction, whether including language regarding the assumptions made and a concern of income decline would be helpful or harmful to your client with regard to future modification needs.
e. Imputing Income: If your jurisdiction imputes or attributes income to an unemployed or underemployed party in alimony cases, consider what COVID-19 employment conditions could impact that determination. For instance, even though the parties may have school-aged children, does one parent now have to stay home to assist with virtual schooling? Has one parent’s health been affected by COVID-19, or does a party with a pre-existing condition justify employment changes intended to reduce the risk of transmission?
2) Expenses and Standards of Living: With decreased social activity, a party’s monthly expenses or budget is likely to vastly different in 2020 then in previous years. For instance, some people may see a temporary decrease in expenses: less transportation costs (not taking the children to/from school or activities), less entertainment expenses (no more movies, ball games, etc.), reduced debt obligations (student loan or other debt deferrals or relief), etc. Alternatively, some expenses may be increased (more cleaning supplies, increased food delivery or take out costs, more online entertainment purchases, etc.). Regardless of the fluctuation, these temporary adjustments are all likely and hopefully temporary in nature. However, it raises the question, particularly in states where standard of living is considered, of how to present a party’s monthly expenses – based on “normal” world or “covid-19” world. It may be helpful to do both. Prepare two monthly budgets and explain the differences. Alternatively, as discussed below,
3) Creative Settlements and Orders:
a. Percentage-based: To avoid returning constantly to court with the income fluctuations of the COVID-19 pandemic, consider establishing alimony based on a percentage of the payor’s net income (calculated as gross income minus specified deductions like federal/state income taxes, FICA, etc.) The payor can provide the recipient spouse with paystubs each pay period or monthly to confirm the amount paid. Whether COVID-19 causes feast or famine, the parties will share in it together.
b. Lump Sum Payment: If you represent the alimony recipient, weigh the benefits and financial certainty of seeking a lump sum payment of alimony in lieu of the periodic payment of alimony that could be subject to modification or awarded at a lower amount based on temporary financial loss. If there are significant concerns over the paying spouse’s employment or health in the future, this might be an opportunity to provide peace of mind if that is important to the client. Be sure the client is fully advised, however, of the pros and cons of this and whether your jurisdiction permits this option.
c. Plan for Potential Modifications: If the alimony amount takes into consideration special COVID-19 circumstances, make sure the order or agreement is clear about what was considered. For instance, the recipient spouse attorney should consider language that the payor spouse had a particularly poor year due to the economic impact of COVID-19 and that it is not in line with his/her historical marital earnings. If your jurisdiction permits modifications of alimony, consider spelling out circumstances that will permit the recipient spouse to modify the alimony more in line with historic income when circumstances improve. You may also want to consider language requiring the parties to exchange tax returns every year or other income documentation at set intervals for the duration of the support obligation.
Unprecedented times call for unprecedented approaches. It is unknown how long family law practitioners and their clients will be dealing with the effects (and after-effects) of the COVID-19 pandemic. During this period, stay informed about updates to the law and relief available, use flexibility and creative problem solving, and always plan for the future when you can – whatever it may hold.
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