Exploring the Intersection of Retirement and Spousal Support
Family lawyers are encountering a growing number of divorced individuals who are either preparing for retirement or have already retired, and who have ongoing spousal support obligations or rights. It is a common misconception that alimony payments automatically cease upon retirement or that the court will automatically terminate support. However, the reality is more complex.
The Termination of Court-Ordered Spousal Support
Unless specified otherwise in the court order, spousal support automatically ends upon the death of either party or upon the remarriage of the recipient, with the exception of Maryland and Virginia, where remarriage does not terminate support. In cases where indefinite spousal support is ordered by the court or established through a settlement, the paying party must petition the court to modify or terminate the alimony obligation.
The Standard for Modifying Indefinite Alimony
In Maryland, Virginia, and DC, a court may modify indefinite alimony if the party requesting the modification proves a “material change in circumstances” since the original award. However, the court has discretion in determining whether retirement qualifies as a material change and whether it warrants a modification. Filing a petition can result in significant legal fees for both parties, with an uncertain outcome. This uncertainty can be shocking for payors, especially when their retirement benefits were divided during the divorce. On the other hand, recipients who rely on alimony may also be surprised to discover that the support they depend on may come to an end, particularly if they haven’t built additional income-earning assets after the divorce.
Virginia’s New Code Provision
While Maryland and DC currently lack specific statutes addressing modification after retirement, Virginia adopted a new provision on July 1, 2018. Section 20-109 (E) of the Virginia Code states that a payor who reaches “full retirement age” is considered to have experienced a material change in circumstances. Full retirement age is the age at which an individual becomes eligible to receive full Social Security retirement benefits, which is no longer fixed at 65 but varies depending on the year of birth.
Factors Considered by the Courts
When considering a request to modify alimony, trial courts analyze several factors, including the parties’ incomes, financial circumstances, age, and health. If retirement serves as the triggering event, Virginia’s new Code provision mandates that the court also consider the following:
- Whether retirement was contemplated by the court when spousal support was awarded.
- Whether retirement is mandatory or voluntary.
- Whether 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.
- The assets or property interests of both parties from the support order date to the modification hearing date.
The Impact of Retirement on the Payor
Upon retirement, a payor’s income may significantly decrease. If the payor reaches full retirement age or retires due to involuntary circumstances, such as health issues or job loss, a court may view it as reasonable to reduce or terminate spousal support. However, voluntarily retiring before the age of 65 may not be seen as reasonable grounds for a reduction. Ultimately, a court must carefully weigh various factors to reach a decision. Even if a payor’s retirement decision is fair and timely, the court may still choose to reduce the amount of alimony rather than terminate it entirely.
Considerations for the Receiving Spouse
If the recipient was employed at the time of the divorce or was expected to return to work, they too may reach normal retirement age or be close to it when the payor retires. Consequently, the recipient’s income may also decrease significantly. A court must assess the circumstances of each party to determine the reasonableness of the alimony modification request and to evaluate the retirement benefits available to both parties.
Planning for Retirement in Divorce Settlements
To avoid future court proceedings, it is advisable to address retirement and potential modifications in a settlement agreement for alimony cases. Parties can consider the following strategies:
- Termination events: Establishing specific termination events, such as the death of either party, remarriage of the recipient, retirement of the payor, cohabitation of the recipient in a marriage-like relationship, or completion of a specific duration of payments.
- Offsets: Agreeing to divide a pension as part of the divorce settlement or offsetting the alimony amount by the pension. Parties could also consider reducing the amount of support if the recipient becomes eligible for Social Security benefits. Additionally, a disaster clause can be included to provide for a reduction in support if the payor experiences an involuntary loss of income due to medical issues, job loss, or forced retirement.
- Lump sum payment or property transfer: Negotiating a lump sum cash payment or transferring an income-generating asset, like an IRA, in exchange for terminating support at retirement. The recipient can then invest these additional assets to generate future income post-retirement.
Conclusion: Navigating Alimony and Retirement
Alimony claims can be challenging for divorcing couples and their legal representatives. With no set standards for initial awards or predicting future modification outcomes, trial courts hold significant discretion in determining whether to modify or terminate alimony after a material change in circumstances has been proven.
As more individuals approach retirement age, it is likely that the courts will face an increasing number of modification requests. To reduce uncertainty and potential conflicts, it is crucial for divorcing parties to address retirement-related support obligations in settlement discussions. Collaborating with legal counsel to outline these provisions in a settlement agreement is essential for ensuring a more predictable outcome when the payor eventually retires.