Legal Definitions - cost-of-living adjustment

A cost-of-living adjustment (COLA) is an automatic increase or decrease in the amount of money paid by one party to another, usually for support or maintenance. The adjustment is tied to the cost-of-living-adjustment figures maintained and updated by the federal government.

For example, if a person is receiving alimony payments from their ex-spouse, the agreement may include a COLA clause that adjusts the amount of the payments based on changes in the cost of living. If the cost of living goes up, the alimony payments will increase accordingly.

Another example is Social Security benefits. The government provides a COLA each year to adjust the amount of benefits to keep up with inflation and changes in the cost of living.

These examples illustrate how a COLA works to ensure that payments keep up with the changing cost of living. It helps to prevent the recipient from experiencing a decrease in their standard of living due to inflation.