The difficulties of predicting alimony reduction on retirement

Posted Tuesday, December 3rd, 2019 by Gregory Forman
Filed under Alimony/Spousal Support, Litigation Strategy, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys, South Carolina Specific

In 2012 South Carolina passed a statute, S.C. Code § 20-3-170(B), in which one subsection set forth criteria for the family courts to consider when modifying alimony upon a supporting spouse’s retirement. One assumed the goal was to create greater certainty and uniformity for retirement-based alimony reduction/termination cases. However this subsection lists six factors for the family court to consider, with one factor, “any other factors the court sees fit,” essentially creating infinite factors.

In the nine years since the statute was passed, no reported decisions have interpreted this subsection. Thus, in any trial or temporary hearing to reduce/terminate alimony based upon the supporting spouse’s retirement, the parties essentially rely upon a family court judge’s (likely unknowable) interpretation of this subsection. While the expanded scope of appellate review from Lewis and Stoney means that ultimately a family court judge’s interpretation of these factors will be given less deference, this is of no help for temporary hearings, attorneys who don’t handle appeals, or litigants who cannot afford appeals. Even when appealed, adverse trial decisions are likely to remain in place for two or more years while the appeal moves forward.

Combine the broad discretion of the catch-all factor with the lack of interpretation from the appellate courts and the ability of family court attorneys to advise clients on the likely outcome of such cases is little better now than it was before this statute was enacted. Because of this, I haven’t risked taking a retired spouse’s alimony reduction/termination case to a contested hearing in the past decade–preferring to settle every single one without asking a family court judge to weigh in.

My risk aversion to taking such cases to contested hearings is heightened by two common factors in such retirement-based alimony reduction/termination cases. First, even upon retirement, the supporting spouse almost always has greater income. Second, the supporting spouse almost always has greater wealth upon retirement. Both these factors lead me to conclude that alimony might be reduced upon retirement but that it won’t be eliminated.

There are myriad reasons supporting spouses typically have greater income even upon retirement. Unless the supported spouse earned substantial income in the years leading up to retirement, that spouse’s social security benefits will generally be based upon the supporting spouse’s income–and that benefit level will therefore be half that of the supporting spouse’s. If the supporting spouse had a defined benefit pension, that spouse likely accumulated years towards that pension after the divorce and therefore will receive more than half the monthly benefit (as not all the pension will be marital). When the supporting spouse had a defined contribution retirement plan (such as an IRA or 401k), that spouse typically funded the plan to a greater extent after the divorce and thus has a greater income stream from retirement assets upon retirement. Finally, many high income professionals (those most likely to pay alimony) retire in stages: from full-time employment to part-time employment or consulting, to full retirement. Thus, they often continue to have some wage income even when “retired.” All these factors perpetuate an income disparity that survives retirement. In such circumstances, I do not believe alimony would be fully terminated. While the transition from full-time to part-time to no employment allows multiple alimony reduction attempts, few folks wish to engage in multiple litigations in their senior years to address alimony.

In my experience, the supporting spouse also enters retirement with greater wealth. There are two reasons for this. First, even with the alimony obligation, most supporting spouses still have greater income after divorce (frankly, they also typically spend more time on employment after the divorce) and this greater income leaves them a greater ability to generate wealth. Second, the high-income spouse typically has more experience and a greater ability to handle money. I see many alimony modification cases in which the supporting spouse has invested his or her share of the marital estate while the supported spouse dissipated those assets over time.

Unlike a continued substantial disparity in income–which would clearly be a factor in deciding how much to reduce and whether to terminate alimony–a disparity in post-retirement wealth shouldn’t be a consideration. The parties had an “equitable” distribution of their marital assets and debts at the time of their divorce; if one party simply did a better job growing (or not dissipating) those assets that should inure solely to that party’s benefit. However, I fear a family court judge would consider this disparity under the catch-all factor and use it to justify a continuation of alimony or to reduce alimony by a lower amount than would be justified otherwise. It will take some intrepid family law attorney to litigate and appeal this issue to get a definitive answer. As much as I would like to be that attorney, I cannot justify my clients litigating alimony through trial and appeal simply so I can have a “test case.”

In my experience when supporting spouses retire (or even semi-retire) they expect their alimony to terminate. When I review their financial circumstances upon retirement, they almost always have substantially greater income and wealth than their ex-spouse. I have yet to risk trial to terminate their alimony because I never thought such an attempt would succeed.

A retiring supporting spouse with greater income and wealth likely faces a continuing, but reduced, alimony obligation. While a semi-retiring alimony obligor can seek further modification upon full retirement, that subsequent case will likely, for the same reasons, only result in further reduction.

For retiring alimony obligors who want a definite end date on their alimony obligation, the best option is to negotiate a lump sum payment to end alimony. That is the only way I have successfully ended alimony upon retirement. While the prospect of writing a sizable check (in one case it was low six figures) to end an alimony obligation that they had assumed would end upon retirement, is never ideal, for all of my clients it has been a preferred option over paying reduced alimony indefinitely.

At the time of divorce, it is difficult to predict the parties’ financial circumstances at the time of retirement, and further difficult to predict how a family court judge would interpret the retirement alimony factors. Therefore, I advise my alimony paying clients not to expect alimony to terminate upon their retirement. Any supporting spouse who wants a definitive end date on alimony either needs to commit homicide on their spouse (I don’t advise that), suicide (I don’t advise that either), or negotiate lump sum alimony.