Why Gross Income Is Used to Calculate Alimony
Formulas and factors for calculating alimony can vary not only from state to state, but from county to county within the same state. Some jurisdictions differentiate between alimony paid during the divorce and that which is paid afterward. Some include statutory formulas in their legislation, while others give a great deal of discretion to judges when deciding these issues. There are few universal rules, and not all states use gross income when making calculations.
Basing calculations on net earnings alone could potentially overlook sources of income, so some states – such as Oregon and Virginia – use gross figures. If you work for someone on a salaried basis and have no other income, your net earnings would be a reasonable reflection of what you have available to pay alimony: your salary minus allowable deductions such as for taxes.
While other income may not be subject to withholding, however, it still contributes to your overall available resources. For example, your employer might supply you with a car, so you don't have a car payment or associated auto expenses. Courts can add the value of a company-owned car to gross income, or they might impute income to a spouse who is deliberately under-employed because she hopes to avoid paying alimony. Attempting to estimate deductions in such iffy scenarios can leave a wide and potentially unfair margin for error, so gross incomes are used instead.
States that base alimony calculations on net income typically begin with gross income, then apply a uniform, statutory list of allowable deductions. Your net income in these jurisdictions is not necessarily what your paycheck says you bring home each week. Your take-home pay might be less than you could potentially have available based on voluntary deductions such as pension loan payments or contributions to a charity. Therefore, net income is usually determined as your gross income minus taxes and, if applicable, mandatory union dues. Some states, such as California and Pennsylvania, also deduct child support payments.
Alimony ensures that after divorce, both spouses enjoy relatively comparable incomes – one spouse isn't left in virtual poverty while the other enjoys a lavish lifestyle. Using all sources of gross income in calculations – as well as permitting only specific deductions to arrive at net income – protects this standard.
The American Academy of Matrimonial Lawyers supports an equation of 30 percent of the paying spouse's income minus 20 percent of the receiving spouse's income. For example, if you earn $8,000 a month and your spouse earns $4,000 a month – using either gross or net incomes – alimony would come out to $1,600 a month payable from you to her, or $2,400 minus $800. California and Virginia use similar equations but with different percentages for temporary alimony orders pending divorce.
Alimony income is taxable to the spouse receiving it and tax deductible to the spouse paying it through tax year 2018, and this can further complicate issues of gross versus net income as a basis for calculations. If your gross income is $96,000 a year but you write off $19,200 as alimony, your income drops to $78,800 and you'll pay less in taxes. After the 2019 tax year, alimony will no longer be deductible.
Comparatively, your ex's income rises to $67,200 as opposed to $48,000 and she'll pay more in taxes. She's not actually receiving $1,600 of financial assistance each month. If you're negotiating alimony with your ex rather than letting a court rule on it, this is an important consideration to keep in mind.
- Law Office of Cristin M. Lowe: California Spousal Support Calculator
- MarketWatch: New Tax Law Eliminates Alimony Deductions
- Skylark Law and Mediation PC: Massachusetts Alimony Calculator
- DivorceNet: Understanding and Calculating Alimony in Colorado
- Free and Clear: Monthly Gross Income Calculator
- Divorce Laws: Spousal Support Calculator
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.