Alimony is deductible by the payer and
considered taxable income for the payee.
It's important for both the payer and
recipient to have alimony payments
clearly defined in the divorce
agreement. The payer of alimony will not
have to itemize the deduction since it's
considered an "above the line"
deduction.
A payment to a spouse under a divorce or
separation agreement executed after 1984
is treated as alimony if it meets the
following requirements:
The payment is in cash, check or money
order.
The spouses are not members of the same
household at the time the payments are
made and
the spouses are legally separated under
a decree of divorce or separate
maintenance.
There is no liability to make any
payment in cash or property after the
death of the recipient spouse.
The
instrument does not designate the
payment as not alimony.
The spouses don't file a joint return.
The payment is not treated as child
support.
Why would I
want to pay alimony?
Alimony or
spousal support is a flexible financial
tool for divorcing couples. It offers
tax advantages that can be financially
helpful to both spouses.
If you and your spouse have dramatically
different incomes, there may be some tax
advantages to using alimony for tax
benefits.
For a higher paid spouse in a high tax
bracket every deduction may be precious.
Likewise a spouse with a substantially
lower income in a lower tax bracket may
not be affected much on their taxes or
tax rate, as a recipient of alimony.
If you could
claim the support paid as alimony, it's
possible to pay your spouse more than
enough to compensate for the extra tax
they would have to pay, and still come
out ahead.
I spend a great deal of time as a coach
helping people think through whether
they could use alimony and have both the
husband and the wife come out better
after tax. Time and effort has proven
that it can be helpful and is worth
looking into.
Be careful
writing your divorce decree, an
annulment or separation can complicate
your tax return
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