If you're getting divorced in New Jersey and trying to figure out how much alimony you may pay or receive, you've probably heard about an "alimony formula."
Here's the problem: New Jersey does not have an official alimony formula.
Unlike child support, where New Jersey has established guidelines that apply in many cases, alimony is determined by looking at the particular circumstances of the marriage and applying the factors contained in New Jersey's alimony statute.
So why do people keep talking about formulas?
Why You've Heard About a New Jersey Alimony Formula
For years, divorce lawyers, mediators, arbitrators, and even some judges used informal calculations as a starting point when discussing alimony. One of the best-known was sometimes called the "one-third rule."
The basic idea was simple: take the higher-earning spouse's income, subtract the lower-earning spouse's income, and use roughly one-third of the difference as an estimate of alimony.
For example, if one spouse earned $200,000 per year and the other earned $20,000, the income difference would be $180,000. One-third of that would be $60,000 per year.
Simple? Yes. The law? No.
New Jersey Alimony Is Not Based on a Percentage
New Jersey courts are required to consider the statutory alimony factors rather than simply plugging two incomes into a mathematical equation. Those factors include the actual need and ability of the parties to pay, the length of the marriage, the parties' ages and health, the marital standard of living, earning capacities and employability, time spent outside the workforce, parental responsibilities, financial and non-financial contributions to the marriage, property received through equitable distribution, investment income, tax consequences, and other circumstances that may be relevant.
The court is supposed to look at the marriage as a whole and determine an appropriate alimony award based upon the evidence. That's considerably more complicated than dividing an income difference by three.
Why Informal Alimony Rules Became Popular
The answer is pretty obvious: People want predictability.
If you're getting divorced, you want your lawyer to tell you what you're likely to pay or receive. Lawyers want to be able to evaluate settlement proposals. Mediators need to help two people find a number they can both live with.
An informal calculation can provide a starting point for those conversations. But a starting point is not the same thing as New Jersey law, and treating a shortcut as though it determines the actual alimony award can create unrealistic expectations.
Two couples with exactly the same incomes could potentially have very different circumstances depending upon the length of their marriages, their lifestyles, their ages, their health, their assets, their earning histories, and dozens of other facts.
That's why the details matter.
The 2019 Tax Changes Made Old Rules Even Less Useful
There is another reason you should be particularly careful when reading older articles about New Jersey alimony.
Federal tax treatment of alimony changed for divorce or separation instruments executed after December 31, 2018. Generally, under the newer federal rules, the person paying alimony cannot deduct those payments and the person receiving alimony does not include them as taxable income.
That change affected the assumptions behind many of the informal calculations divorce professionals had historically used. So if you find an old article online telling you to take the difference between two spouses' incomes and divide it by three, don't assume that calculation tells you what your alimony will be. It doesn't.
So How Do You Estimate Alimony in New Jersey?
This is where experience becomes important. There isn't one equation that I can give you and say, "Put your numbers here and this is your alimony." Instead, we look at the statutory factors, the marital lifestyle, each spouse's income and earning ability, the length and circumstances of the marriage, and the financial needs of both parties. From there, an experienced New Jersey divorce attorney can evaluate the facts and give you a much more realistic idea of the range of outcomes you may be dealing with.
It isn't as neat as a formula. But divorce cases aren't neat either.
If you're trying to understand alimony and the other financial issues that may affect your divorce, my free Divorce Smarter Course walks you through the New Jersey divorce process in straightforward terms so you can make better-informed decisions before taking your next step.
Until next time,
Steve