How to calculate alimony increases based upon the Consumer Price Index
Posted By Posted by Damien McKinney on Mar 26, 2014 5:35am PDT || Mar 26, 2014
I have seen settlement agreements that allow for an annual increase of alimony to take into account for inflation. A recent Fifth District Court of Appeals case laid out the formula necessary to calculate that annual increase if your agreement allows for such increase. In Vyfvinkel v. Vyfvinkel, the parties had a settlement agreement that allowed for annual inflation adjustments to the Husband’s alimony obligation. The settlement agreement read as follows:
“Alimony shall continue at $4,000.00 per month to be increased only annually beginning January, 2012, at the rate of the “Consumer Price Index” (“CPI”) as such CPI is published from time to time by the U.S. Government. The parties shall utilize the CPI rate as reflected in the last published United States CPI rate for the year ending before the annual January change date. (Example: First change date January 1, 2012; therefore use last published CPI rate closest to December 31, 2011, and so on from year to year).”
The trial court adopted Husband’s interpretation of this language and held that each year Husband was permitted to multiply the one-year CPI rate stipulated in the agreement by the original $4,000.00, to calculate the alimony amount for the new year. For example, if CPI for 2011 had been three percent, the formula would have yielded an alimony payment of $4,120.00 during 2012. For 2013, according to the Husband, if CPI for 2012 had been two percent, he was entitled to essentially wipe out the adjustment for the prior year and reduce the 2013 alimony payment to $4,080.00 ($4,000.00 + [$4,000.00 x 2%] = $4,080.00). The appellate court disagreed and read the agreement as requiring an adjustment that takes into account the cumulative effect of inflation, so that (using the hypothetical CPI numbers in this paragraph) the 2013 alimony payment would be $4,200.00 ($4,000.00 + [$4,000.00 x (3% +2%)]).
The appellate court reasoned that the CPI adjustment language in the agreement was intended to protect the negotiated alimony amount from erosion by inflation. The language should be read in a manner that will actually accomplish, rather than defeat, that intended purpose. This is a complex way of saying the Wife was entitled to an annual increase in alimony based upon inflation. Drafting agreements are an important task that can have very real consequences in the future. It is always in your best interest to discuss the language of your agreements with your expert family law attorney.