The state of Texas is famous for not allowing alimony following a divorce. Instead of alimony, it affords justice to both parties by splitting in half the marital estate (property acquired during the marriage). This is what is meant in calling Texas a community-property state. There are nine community-property states in America, and all but one (Wisconsin) are on the southwestern rim of this country stretching from Louisiana to Washington.
In 1995, however, Texas decided that, in addition to splitting the community property, a narrow form of alimony – so-called spousal maintenance – should be allowed in limited circumstances. Spousal maintenance has a three-year maximum of $2,500 a month or 20% of gross income, whichever is less. Many critics of the law made the slippery-slope (or camel’s nose under the tent) argument that once a limited alimony was adopted, it would be only a matter of time before Texas adopted the full-scale, lifetime alimony that some other states allow. Well, I guess that slope wasn’t as slippery as suspected because the authorized amounts have not been adjusted, even for inflation.
(Incidentally, child support in Texas is typically limited to $1,200 a month or 20% of income, whichever is less. I wonder why an ex-spouse of a high-income person deserves more than twice as much as the child of a high-income person. That difference doesn’t make sense.)
I have friends who complain that a spouse shouldn’t automatically be entitled to half of a marital estate if the other spouse generated nearly all the income. For example – Michael Jordan. I disagree, and instead subscribe to the statement made by a California divorce lawyer:
- “In California, we live in a community property state. Community property exists to ensure that the roles of each party to a marriage is given equal importance for purposes of dividing the property that was acquired by the marriage.
Just because Mitt Romney’s wife stayed at home raising their five boys while he was making $700 million, it is ludicrous in my mind to think that she is not entitled to half of that money if they were to divorce.
Last week, it dawned on me that there is a strong argument that awarding half of the marital estate to the low-earning individual is inadequate. The argument came to me when I was discussing with a friend USAA’s elimination of its pension a few years ago. USAA acknowledged to us older employees that the value of a pension balloons in an employee’s last few years of employment, and therefore those of us over 45 years of age would be seriously and negatively affected by the elimination of the USAA pension just as we were entering those years. To make up for that negative effect, USAA promised to provide us older employees with a so-called bridge-to-retirement benefit. As I recall, the bridge benefit was an additional 8% contributed to our 401k for about eight years.
Why does the value of a pension balloon at the end? Everyone knows that the value of a 401k grows greatly at the end because of compounding, but pensions grow almost exponentially because their payout is based not only on years of service, but also on final average pay. Thus, instead of calculating the pension payment on what an individual has earned, and thereby contributed, to the pension, a pension payout considers only what individuals earned in their highest 1, 3, or 5 years of pay. In almost all situations, an individual’s compensation continues to rise all the way to retirement (sometimes dramatically), and those highest years are considered for the calculation and those low-paying years are disregarded.
If you apply this thinking to divorce settlements, it becomes obvious that the low-paying spouses are short-changed because often the divorce will take place at a time when the couple has been spending their income on their family and have not yet entered the asset-accumulation phase. In such situations it seems that justice would be served by either giving more than half of the assets to the low-income spouse or to require a more significant amount of alimony.