In this article, we will be discussing how to calculate the amount of spousal maintenance in Illinois. For some foundational information, check out Illinois Spousal Maintenance Explained and Changes to Illinois Spousal Maintenance Law for 2018.
First, before diving into what income is used to determine maintenance, it is important to understand how maintenance is calculated. The Illinois Marriage and Dissolution of Marriage Act (“IMDMA”) provides a simple formula for determining maintenance. That formula is as follows:
Maintenance = 30% of the Payor’s (spouse paying maintenance) gross income minus 20% of the Payee’s (spouse receiving maintenance) gross income.
For example - if Spouse 1 earns $120,000 and Spouse 2 earns $40,000, a maintenance calculation would look as follows:
However, the number calculated as maintenance, when added to the Payee’s gross income, cannot exceed 40% of the parties’ combined gross income.
Using the example from above:
$120,000 + $40,000 = $160,000 (Parties’ combined gross income)
Payee’s gross income + maintenance has to be less than 40% of $160,000, or $64,000.
In this example, Payee’s gross income ($40,000) + maintenance ($28,000) equals $68,000, which is greater than 40% of the combined gross income. In a situation like this, the Payee is not disqualified from receiving maintenance. The maintenance award is simply reduced to the statutory limit. Here, the Payee’s receipt of maintenance in the amount of $28,000 is $4,000 greater than the statutory limit. Therefore, maintenance can be reduced to $24,000, or $2,000 per month, to stay within the statutory limit.
The formula to calculate maintenance requires a party’s “gross income” be used for such calculations. Section 504(b-3) of the IMDMA states that “all income from all sources” is to be considered income for purposes of setting maintenance.
For ease and conformity, typically parties’ previous-year Form W-2 or final paycheck (showing year-to-date) income is used to calculate maintenance. This method allows for uniformity between both parties as the income used to determine maintenance comes from the same general source. Additionally, as many people are salary employers and/or do not experience substantial increases or decreased on a year-to-year basis, using a W-2 allows for maintenance determinations that generally can stay in effect for years to come - avoiding the need to appear in court each year to re-determine maintenance. Sometimes it is still necessary to appear in court to determine maintenance and we will discuss that below.
In situations where parties have variable income, it can be preferable to impute, or estimate, income. For example, an employee in a sales position may experience gross income of $100,000 in Year 1, $300,000 in Year 2, and $80,000 in Year 3. If maintenance is to be determined and beginning in Year 4, you can impute income to the Payor party by averaging the last three years’ gross income.
For example: $100,000 + $300,000 + $200,000 = $600,000. Divided by 3 and an income of $200,000 can be imputed to the Payor.
This is a situation where it’s better to use an average income rather than a fixed income that may represent a high water mark year for earnings (resulting in Payor being ordered to pay maintenance they won’t be able to continue paying) or a low water mark year (resulting in Payee receiving less than they should in the long run).
This is also a situation where it would be desirous to include a “true up” requirement in the parties’ settlement agreement.
A true-up is a tool used to determine maintenance when a party’s income isn’t easily ascertainable such as where the party may be the recipient of incentive or performance-based bonuses.
On the most basic level, the way a true-up generally works when determining maintenance is in the form of a one-time payment of additional maintenance - usually around the beginning of the year after the payor party receives his or her tax documents.
Let’s say Payor spouse receives a bonus at the end of each year per the employer’s profit sharing plan. This amount is unknown and varies based on how successful the employer’s business was in the past year. Parties can utilize a true-up in this situation so Payee spouse receives what would properly considered in the maintenance calculation had these wages been earned during the year.
For example, using the same scenario as we did above when imputing income, the parties in that example can agree to maintenance using a true-up in addition to the set maintenance. In such a situation, the final maintenance would look as follows:
Maintenance will be based on an imputed income of $200,000 for Payor and let’s say say $50,000 for Payee. Therefore, maintenance would be equal to $50,000 per year (($200,000 x 30%) - ($50,000 x 20%)).
If they’re using a true-up, the parties then have an additional payment which could be agreed upon under terms such as “Payee shall receive 30% of any and all income Payor receives above and beyond $200,000.” This way, Payee is guaranteed the $50,000 for statutory maintenance and can then receive additional maintenance under the true-up.
While Illinois doesn’t have statutory authority specifically aimed at including cost-of-living in maintenance awards, it is considered in another manner. Each party to a dissolution action has to produce a financial affidavit to the other party which delineates their monthly income, monthly deductions, monthly living costs, and monthly debts paid. Therefore, after calculating what amount of money a party has available after all of those considerations, maintenance may be negotiated based on what amount would allow the Payee spouse to meet his or her cost of living.
Since we briefly discussed cost of living and how that relates to maintenance, it’s a good idea to include for reference that the IMDMA expressly takes into consideration certain elements when making a maintenance award determination. Most notably, “the needs of each party” and “the standard of living enjoyed during the marriage” are considered under Section 504 of the IMDMA.
What that means is that if the Payor spouse earns a seven-figure salary and the Payee spouse has now become accustomed to living in a lavish Gatsby-esque home for the previous 20 years while remaining a homemaker for that period, the Payor spouse must pay maintenance which allows the Payee to afford the costs of living similarly to how Payee lived during the marriage.