In Texas, Litigants Have Two Options

An attractive feature of contractual alimony is that it is deductible on the paying party's federal income tax return and includable as income for the receiving party. Where the paying party will be in a higher tax bracket than the receiving party, a financial benefit may result. Contractual alimony is only permitted as continuing stream of support payments which are separate and apart from the division of the marital estate. It may not be used for purposes of property settlement.

Post-divorce contractual alimony is defined as cash payments made pursuant to a divorce decree or written agreement incident to divorce (AID). Whether contained in a decree or AID, the written alimony agreement should clearly recite that the payments are intended to be included in the gross income of the receiving party under '71(a) of the Code and deductible by the paying party under '215(a) of the Code.

A further defining condition of contractual alimony is that there may not be any liability for payment after the payee spouse's death, nor may there be any post-death liability for payment (in cash or property) as a substitute for such payments. This provision should be specified in the written agreement.

The written agreement should clearly state the payment amount and term, as well as reciting the intended tax impact. Additionally, it should anticipate the circumstance where the receiving party fails to report and pay all corresponding tax properly by including terms that suspend payments and reduce the payment obligation by the amount of additional tax actually paid by the paying party. Often, an agreement includes an acceleration clause applicable if the paying party defaults on the payment obligation.

Contractual alimony payments may not include payments to support a child and may not include a contingency involving a child. For example, if the alimony obligation will be reduced upon the occurrence of a child-related contingency (such as attaining a specified age or leaving school), the Internal Revenue Code provides that the reduction amount will not be treated as contractual alimony for the entire payment duration.

Contractual alimony payments may not be front-loaded. It is simplest to have equal payments due for each payment period. However, if there is a compelling need to vary the amounts slightly, the attorney should seek advice from a tax professional to avoid triggering re-computation for excessive front-loading of payments. The parties may agree that the payments will terminate upon the remarriage of the receiving party and such occurrence will not trigger re-computation for excessive front-loading of payments.

Chapter 8 Spousal Maintenance

In limited situations, Texas Family Code Chapter 8 authorizes post-divorce payments called spousal maintenance. Such payments may be ordered by the court with or without the agreement of the parties. As with child support, spousal maintenance payments are not tax deductible.

To order spousal maintenance, the court must find that the payee spouse will lack sufficient property (including separate property) upon divorce to provide for the spouse's minimum reasonable needs. Additionally, the court must find that: 1) the payor spouse has committed family violence within two years of the divorce filing or while the suit is pending; or 2) one of three additional conditions:

1. The marriage duration was longer than 10 years and the payee spouse lacks the ability to earn sufficient income to provide for the spouse's minimum reasonable needs;
2. The payee is incapable of self-support because of a disability; or
3. The payee is the custodian of a disabled child of the marriage.

In determining the amount and duration of maintenance, the court shall consider “all relevant factors,” including: 1) the education and employment skills of the spouses; 2) the time necessary to acquire sufficient education or training to enable the spouse seeking maintenance to earn sufficient income; 3) the duration of the marriage; and 4) the contribution of a spouse as homemaker.

In some circumstances, it is a rebuttable presumption that maintenance is not warranted unless the spouse seeking maintenance has exercised diligence in earning sufficient income or developing the necessary skills to provide for the spouse's minimum reasonable needs subsequent to the separation of the parties.

Depending upon the length of the marriage, the maximum duration of maintenance ranges from five years (if the marriage lasted less than 10 years or in the event of family violence) to 10 years (if the spouses were married 30 years or more). However, the court is required to limit the duration to the shortest reasonable period that allows the spouse to provide for the spouse's minimum reasonable needs, absent disability.

The maximum amount of monthly maintenance is the lesser of $5,000 or 20% of the obligor spouse's average monthly gross income. The court may order the obligor's employer to withhold that sum from the disposable earnings of the obligor.

The obligation to pay maintenance terminates on the death of either party or on the obligee's remarriage. Additionally, the court shall order the termination of maintenance if the court finds at a hearing that the obligee cohabites with another person with whom the obligee has a romantic relationship.

The court may modify the maintenance order upon a showing of a material and substantial change in circumstances regarding the factors utilized for the initial maintenance determination.

The court may enforce its maintenance order by contempt. However, it may not enforce by contempt the portion of an agreed order that exceeds the amount or duration of periodic support the court could have ordered under Chapter 8.

Jonathan J. Bates is a partner in Kinser & Bates in Dallas. He serves on the State Bar of Texas Family Law Council and the board of trustees of the Texas Family Law Foundation. He also serves as an officer of the Texas Academy of Family Law Specialists, and he is a fellow with the American Academy of Matrimonial Lawyers. This article also appeared in The Texas Lawyer, an ALM sister publication of this newsletter.

Although the Texas Family Code does not authorize alimony as that concept exists in other states, two options exist for post-divorce support payments for Texas litigants.

Contractual Alimony

The Internal Revenue Code authorizes payment of contractual alimony under specific conditions where agreed upon between parties. However, the court may not order contractual alimony absent agreement of the parties.

An attractive feature of contractual alimony is that it is deductible on the paying party's federal income tax return and includable as income for the receiving party. Where the paying party will be in a higher tax bracket than the receiving party, a financial benefit may result. Contractual alimony is only permitted as continuing stream of support payments which are separate and apart from the division of the marital estate. It may not be used for purposes of property settlement.

Post-divorce contractual alimony is defined as cash payments made pursuant to a divorce decree or written agreement incident to divorce (AID). Whether contained in a decree or AID, the written alimony agreement should clearly recite that the payments are intended to be included in the gross income of the receiving party under '71(a) of the Code and deductible by the paying party under '215(a) of the Code.

A further defining condition of contractual alimony is that there may not be any liability for payment after the payee spouse's death, nor may there be any post-death liability for payment (in cash or property) as a substitute for such payments. This provision should be specified in the written agreement.

The written agreement should clearly state the payment amount and term, as well as reciting the intended tax impact. Additionally, it should anticipate the circumstance where the receiving party fails to report and pay all corresponding tax properly by including terms that suspend payments and reduce the payment obligation by the amount of additional tax actually paid by the paying party. Often, an agreement includes an acceleration clause applicable if the paying party defaults on the payment obligation.

Contractual alimony payments may not include payments to support a child and may not include a contingency involving a child. For example, if the alimony obligation will be reduced upon the occurrence of a child-related contingency (such as attaining a specified age or leaving school), the Internal Revenue Code provides that the reduction amount will not be treated as contractual alimony for the entire payment duration.

Contractual alimony payments may not be front-loaded. It is simplest to have equal payments due for each payment period. However, if there is a compelling need to vary the amounts slightly, the attorney should seek advice from a tax professional to avoid triggering re-computation for excessive front-loading of payments. The parties may agree that the payments will terminate upon the remarriage of the receiving party and such occurrence will not trigger re-computation for excessive front-loading of payments.

Chapter 8 Spousal Maintenance

In limited situations, Texas Family Code Chapter 8 authorizes post-divorce payments called spousal maintenance. Such payments may be ordered by the court with or without the agreement of the parties. As with child support, spousal maintenance payments are not tax deductible.

To order spousal maintenance, the court must find that the payee spouse will lack sufficient property (including separate property) upon divorce to provide for the spouse's minimum reasonable needs. Additionally, the court must find that: 1) the payor spouse has committed family violence within two years of the divorce filing or while the suit is pending; or 2) one of three additional conditions:

1. The marriage duration was longer than 10 years and the payee spouse lacks the ability to earn sufficient income to provide for the spouse's minimum reasonable needs;
2. The payee is incapable of self-support because of a disability; or
3. The payee is the custodian of a disabled child of the marriage.

In determining the amount and duration of maintenance, the court shall consider “all relevant factors,” including: 1) the education and employment skills of the spouses; 2) the time necessary to acquire sufficient education or training to enable the spouse seeking maintenance to earn sufficient income; 3) the duration of the marriage; and 4) the contribution of a spouse as homemaker.

In some circumstances, it is a rebuttable presumption that maintenance is not warranted unless the spouse seeking maintenance has exercised diligence in earning sufficient income or developing the necessary skills to provide for the spouse's minimum reasonable needs subsequent to the separation of the parties.

Depending upon the length of the marriage, the maximum duration of maintenance ranges from five years (if the marriage lasted less than 10 years or in the event of family violence) to 10 years (if the spouses were married 30 years or more). However, the court is required to limit the duration to the shortest reasonable period that allows the spouse to provide for the spouse's minimum reasonable needs, absent disability.

The maximum amount of monthly maintenance is the lesser of $5,000 or 20% of the obligor spouse's average monthly gross income. The court may order the obligor's employer to withhold that sum from the disposable earnings of the obligor.

The obligation to pay maintenance terminates on the death of either party or on the obligee's remarriage. Additionally, the court shall order the termination of maintenance if the court finds at a hearing that the obligee cohabites with another person with whom the obligee has a romantic relationship.

The court may modify the maintenance order upon a showing of a material and substantial change in circumstances regarding the factors utilized for the initial maintenance determination.

The court may enforce its maintenance order by contempt. However, it may not enforce by contempt the portion of an agreed order that exceeds the amount or duration of periodic support the court could have ordered under Chapter 8.

Jonathan J. Bates is a partner in Kinser & Bates in Dallas. He serves on the State Bar of Texas Family Law Council and the board of trustees of the Texas Family Law Foundation. He also serves as an officer of the Texas Academy of Family Law Specialists, and he is a fellow with the American Academy of Matrimonial Lawyers. This article also appeared in The Texas Lawyer, an ALM sister publication of this newsletter.