As the year draws to a close one issue that many separated and divorcing couples have not considered is the impact of the tax laws on their divorce. Taxes absorb a significant amount of income and impact cash flow and wealth. If you are paying or receiving alimony there are important rules about how they impact your taxes.
Amounts of spousal suport paid under divorce or alimony order or written separation agreements entered into between you and your spouse or former spouse will be considered alimony for Federal tax purposes only if:
- You do not file a joint tax return with your spouse or former spouse;
- Payments are made in cash, checks or money orders;
- The payment is received by your spouse or former spouse
- The document under which it is paid does not say that the payment is not alimony;
- You and your spouse are not members of the same household when you make the payment;
- You have no liability to make the payment after the death of your spouse or former spouse, and
- Your payment is not child support or for a property settlement.
Alimony does not include:
- Payments for child support
- Property settlements
- Payments to keep up the payer’s property, or
- Use of the payer’s property
The payor of alimony may deduct from income on his taxes the amount of alimony or separate maintenance paid. The recipient must include in income alimony or separate maintenance she received.
As indicated above, child support is never deductible. Also, noncash property settlements, whether in a lump sum or installments, are not alimony. Voluntary payments are also not considered alimony for tax purposes.