What creative options exist to pay spousal support in Oregon? There are many different ways to pay spousal support. Each has its pros and cons. Let’s dive in and determine the many creative options to pay spousal support in Oregon.
There are four ways to creatively pay spousal support:
- Steps by income
- Steps by time
- Lump sum payout
- Property in lieu of spousal support
In Oregon, spousal support is alimony. Technically, alimony is the federal term for spousal support and spousal support is Oregon’s term. They mean the same thing.
If you want to learn more about how spousal support is calculated, click here.
For the purposes of this blog, we will presume a spousal support award of $1,500 per month for six years. (Note: six years is 72 months). $1,500 x 72 = $108,000.
The first creative way to pay spousal support in Oregon is to award spousal support in steps. It is sometimes called the step-down method. Spousal support can be stepped-down by time and by income. Let’s explore each.
Steps By Time
The intention of spousal support is to help the lower wage earner with funds while they are becoming self-sufficient over time. For some folks, giving the same amount for a set period of time doesn’t encourage them to earn more money and become self-sufficient.
The truth is that some individuals, and certainly not all, aren’t motivated to be self-sufficient. Many, many people come through my office asking for a divorce because they are tired of their spouse refusing to work. So, for the spouse who is unmotivated to become self-sufficient, a spousal support award by time may make sense.
We essentially break-down the spousal support award in a series of steps. Some people start at where the support should be (22% of the difference between each party’s gross incomes) and then titrate down from there, such as the following:
Step One: $1,500 per month for two years
Step Two: $1,000 per month for two years
Step Three: $500 per month for two years
Some people use the total amount owed ($108,000) and pay that amount in a front-loaded step method. This is good for the spouse who may need to re-train for a year or two and thus needs more money at first and less money later when they are earning a better wage.
Step One: $3,000 per month for two years
Step Two: $2,000 per month for two years
The step-down by time creates a strong incentive to work, but it also is rigid and lacks the flexibility that a person receiving spousal support may need for a variety of reasons.This is my least favorite way to pay spousal support.
If you want to calculate your spousal support, click here.
Steps By Income
Another creative way to pay spousal support is to award spousal support in a step-down by income method.
Some parties feel that spousal support steps, based upon the income of the party receiving spousal support (i.e. the payee), makes most sense. Why?
Using our example, if the payee is earning $2,022 per month and the payor is earning $8,840 per month, then the award is likely to be around $1,500 per month.
Let’s presume the payee gets a new job and is now earning $3,500 per month. That’s a $1,500 per month increase in wages. It’s reasonable to say that it is not fair for the spousal support award to continue to be $1,500 per month. It’s also reasonable to say that it is not fair for the spousal support to be totally eliminated because there is still quite the disparity in income between the payor at $8,840 per month and the payee at $3,500 per month.
And, this is why step-downs by income are helpful.
Spousal support steps by income may look like this:
Step One: Payee earns between $0 and $2,999: $1,500 per month in spousal support
Step Two: Payee earns between $3,000 and $3,999: $1,200 per month in spousal support
Step Three: Payee earns between $4,000 to $4,999: $1,000 per month in spousal support
Step Four: Payee earns between $5,000 – $5,999: $750 per month in spousal support
Step Five: Payee earns between $6000 – $7,500: $500 per month in spousal support
This step-down by income methodology progressively decreases as the payee earns more money. It also keeps the 22% of the difference between payor’s income and the payee’s income, it reduces the payor’s resentment for paying the same amount when the other spouse is earning more money, and it helps the spouse receiving support to have a safety net while becoming self-sufficient.
Although the step-down by income methodology has many benefits, it is also a pain to negotiate and it is a nightmare to properly draft. Just one of the many reasons why you hire an attorney-mediator to handle your divorce.
Lump Sum Payout
A lump sum pay-out of spousal support means that all of the spousal support is paid in cash at one time.
For a lump sum pay-out, four steps need to be taken:
- calculate how much spousal support is owed to your spouse
- determine the present value discount to the spousal support
- figure out how to pay the discounted amount
- add language to the divorce judgment (or mediated agreement) that indicates that the lump sum payment is the full payment and that the receiving spouse waives all rights to receive additional spousal support.
How to calculate how much spousal support is owed to your spouse?
Figuring out how much spousal support is owed is the easy part. Even I can do this math. The formula is: amount per month x number of months = amount owed. For example, $1,500 x 72 = $108,000. So, the amount owed is $108,000.
What is a present value discount?
For our example, if spousal support was $1,500 x 72 months, then the amount owed in the future is $108,000. Those are future dollars, not present value dollars. What does that mean?
$108,000 in the future is not worth $108,000 today. Why? Well, the simplest explanation is that if I had $108,000 today, even if I only put it into an interest bearing savings account, in 6 years, it would be worth more than $108,000. Therefore, if it is worth more in 6 years, then it must be worth less today.
Then, to further complicate the math, everything changes every month that a payment is made.
I am not great at math and, the truth is, most attorneys aren’t great at math, either. We hire people to handle the complex math for our cases. If I was needing a present value discount, I would require that we hire either a financial planner or an accountant to determine an appropriate present value discount for my parties.
If you wanted to calculate your own present value discount, you would use the following formula:
Present Value = Monthly Payment x [(1 – (1 / (1 + r)^n)) / r]
Yuck, right?! My eyes glazed over while rolling into my head, too. You aren’t alone.
So, (rubbing my hands together like a movie villain) let’s strategically use the internet to our advantage (followed by a maniacal cackle).
Click here to access a calculator that calculates present value discount: https://www.calculator.net/future-value-calculator.html?cyearsv=72&cstartingprinciplev=0&cinterestratev=0.41666&ccontributeamountv=1%2C500&ciadditionat1=beginning&printit=0&x=Calculate#calresult
For our purposes, it is widely accepted that a conservative annual percentage rate of return is 5%.
An annual rate of return needs to be calculated into months, which means 5% divided by 12 months = .41666%.
Breathe. You got this.
So, using our $1,500/mo for 72 months spousal support award, you would enter it into the calculator as follows:
Enter the number of months in the “Number of Periods (N)” section: 72.
Ignore the “Starting Amount” section: Ignore this section
Enter the interest rate in the “Interest Rate (I/Y)” section: .41666%
Enter the monthly spousal support in the “Periodic Deposit (PMT)” section: $1,500
Click calculate!
Then, it will show you the results that the Present Value in our scenario is $93,527.46, the Future Value is $126,169.59, and therefore the amount we should discount is $18,169.59.
All of this means that a spousal support award of $108,000 is worth $93,527 if paid-out in a lump sum today. Eat a cupcake. You earned it.
Now that you are a badass and can determine the present value discount of a spousal support award, the next step is…
How do we pay for it?
You really only have two options: either in a lump sum payment in cash or by off-setting with property.
Property In Lieu Of Spousal Support
After you’ve calculated the present value discount to your spousal support award, you may realize you don’t actually have the cash needed to give to your spouse. So, now what?
Another option is to award additional property in the divorce in lieu of spousal support.
But…. be careful because the property must be something the spouse can access now in order to get the present value discount.
Julie, you are making my brain freeze. Stay with me. You are at the 1 yard line.
If you have a house, we can award $93,527 in additional equity to your spouse who wants the house, which means s/he will pay you out your 50% share of the equity minus $93,527.
If you want to award $93,527 from your retirement plan, and they can’t access that plan until they retire, then the present value discount doesn’t really work, does it? In that scenario, we would be working on the $108,000 value. In all honesty, though, this rarely ever happens. It’s too far removed for someone who needs spousal support. I’ve seen many folks give up spousal support to keep the house, but not for retirement they can’t access for 15-20 more years.
Don’t Forget the Special Language in your Judgment
When awarding either a lump sum or property in lieu of spousal support, I like to add the following language:
“In lieu of a spousal support award, the parties negotiated [a larger share of the marital assets in favor of the person receiving spousal support]. Each party waives any additional claim for spousal support from the other party. The parties have specifically relied upon this provision in their negotiations for other provisions within this Agreement. Both parties waive any and all rights to seek, motion, and/or petition the Court to modify this spousal support provision. Furthermore, each party releases the other party from any claim for support not specified in the Agreement and each party waives any right to assert any future claim for support. The parties’ waiver to seek modification of this section is knowing and intentional.”
Why is this language Important?
If you have negotiated the terms, then you need to tell it to the court to avoid future requests for additional spousal support.. That way, if the party receiving support changes his/her mind in a few months and petitions the court for more spousal support, you have language that (1) identifies that spousal support was already paid-out, and (2) any future requests are waived.
If you feel overwhelmed and need to talk this through, schedule a consult with me.
