So You’re Thinking of Early Retirement?

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Retiring?As the population continues to age, the impact of early retirement and decrease in earnings on spousal support (alimony) becomes greater. People wanting to retire early hope that their exiting support obligations will be modified at the very least, or eliminated altogether. This is not necessarily in bad faith (e.g., trying to shirk their support obligations), but for entirely legitimate reasons.

For example, what happens with a couple who divorced, and the supporting-spouse wants to retire because he has worked more than 30 years at the job and has health issues, and the supported-spouse has not worked for many years. What happens to her support? The supporting-spouse’s retirement income will not be sufficient for each to live at the standard of living to which they had become accustomed during the marriage. Both are probably in their late 50s or early 60s with deteriorating health and the current job market disfavors older workers.

The question becomes: when a supporting-spouse wants to retire early, what is a fair and reasonable result for both parties and the best way to achieve it?

Under the law in California, spousal support can be modified under certain circumstances, such as when one party makes substantially less than they did before the original support order. The ultimate decision to modify the order can be the decision of the parties or with a court, which has broad discretion so long as the court considers a variety of statutory factors.

But when a supporting-spouse chooses to stop working (which is the case with early retirement), for purposes of support orders, trial courts can “impute” income to that spouse, which means setting support based upon what the spouse would be able to pay if they kept their job or found reasonable other employment. (See the California case In re Marriage of Stephenson). In contrast, a supporting-spouse who retires at or after “normal” retirement age will not have income imputed because with “a bona fide retirement, a supporting spouse should not be forced to continue working.” (See the California case In re Marriage of Reynolds). Consequently, a court would have a valid basis for reducing support in the latter instance but not the former.

What is the best way to resolve this dilemma? When the parties are negotiating their divorce, either through the courts or through mediation, the spouse who needs support should first see a vocational counselor for a vocational evaluation. This prepares him or her to possibly find gainful employment, if it exists, and to eventually be able to support him or herself.

If the parties were in mediation, they could draft their agreement to provide for the supporting-spouse’s choice to retire and its subsequent impact on any support obligation. The parties could agree to distribute the marital property in a way that would offset spousal support or make it unnecessary. The parties could also modify their agreement later to adjust what proportion of the retirement income the supported-spouse receives. They could even do a lump sum exchange of cash, property, or some other asset and do away with the support obligation. With mediation, the parties have a chance to come up with creative solutions to fit their own needs, ones that both parties find fair.

This blog was researched and co-written by Sophia De Santis, JD.

 

One thought on “So You’re Thinking of Early Retirement?

  1. Breanne Mcpartlin says:

    When contemplating retirement the majority of us seem pre-programmed to only consider the far reaching financial implications of never bringing in an income again! But the fact of the matter is that there are many more things to consider if planning on retiring abroad, not to mention the fact that many retirees overseas pick up odd jobs and part time positions advising and assisting other expatriates with their lives and businesses anyway!

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