SANTA ROSA FAMILY LAWYER BLOG

Articles Posted in Alimony

Published on:

Alimony, taxes and tax deductions. Tax day recently came and went and with it, many Americans were thinking about what deductions they could list on their returns. The tax code seems to get more complicated every year, making it difficult for taxpayers to avoid paying more than they are legally obligated. Divorcees who pay or receive alimony or child support are particularly vulnerable to our complex tax laws and the risk of overpayment. In order to maximize their deductions, divorced taxpayers need to carefully analyze the rules governing spousal support payments. The tax implications of alimony are quite different, depending on whether you are on the paying or receiving end of the money.

TaxesTax Implications for Paying Alimony

Alimony payments are generally tax-deductible for the person paying the support. If you pay alimony to your ex-spouse, make sure that you list it as a deduction on your tax return. Note that certain other types of payments to an ex-spouse are not tax-deductible. These include child support payments, distributions of personal or real property, and mortgage payments on a house co-owned by the two ex-spouses (you can deduct half, but not all, of those mortgage payments). Make sure you keep separate records of your alimony and child support payments, so that you do not confuse them on your tax return.

Tax Implications for Receiving Spousal Support

If you receive spousal support payments, you should be aware that it is considered taxable income. You will want to factor in the alimony payments when you are trying to figure out which tax bracket you fall into, and plan accordingly. Failing to report alimony payments you have received on your tax return will likely result in an IRS audit, particularly since your ex-spouse is likely to deduct the payments on their own tax return. Mortgage payments made to third parties on your behalf are also considered taxable income. Child support payments, however, are not taxable, and neither are non-cash property settlements.

Divorce Decree Should Clarify Types of Payments

A divorce decree or marital settlement agreement is issued at the end of a divorce proceeding and spells out each party’s obligations. The decree or agreement will often clarify which payments qualify as spousal support (and are therefore tax-deductible) and which do not. In addition to child support, other payments that are not tax-deductible include money used to maintain the payer’s property or the simple use of the payer’s property. You should read the decree or agreement carefully in order to make a preliminary determination as to which payments are taxable or which may be tax-deductible, and make sure to comply with its terms.

What to Do if You Are Paying or Receiving Alimony

Continue reading →

Published on:

AlimonyAlimony, which may also be referred to as spousal support, is a monthly payment made by one spouse to the other following divorce. Alimony is used to prevent any unfair economic effects of a divorce on one spouse, such as a spouse’s impaired earning potential.
There are no definite formulas for determining the amount of spousal support that a former spouse can receive. Every divorcing couple is different and the amount of support a spouse can expect to receive is based on each couple’s individual circumstances. However, some common factors that are considered include:

· Income and property of each spouse
· Earning capacity of each spouse
· Impairments in earning capacity
· Whether there are any children and who will be raising the children
· Standard of living
· Duration of marriage
· Sacrifices or contributions one spouse made to the career or education of the other spouse
Spouses that have income and earning capacity that is comparable to the former spouse’s, they will receive less in alimony. However, if the lower earning spouse has custody of the children, if the marriage was particularly long or they contributed to their former spouse’s success, the amount of alimony may be adjusted accordingly.
Many people do not realize that there are different types of alimony. Rehabilitative alimony is made for a fixed period of time to allow the receiving spouse to get a job or finish their education. It acts as a transition for the receiving spouse. Many courts will periodically review rehabilitative alimony to determine if it should be continued, discontinued or adjusted.
Former spouses may also receive reimbursement alimony. Reimbursement alimony is awarded when one spouse reimburses the other spouse for expenses incurred during the marriage. For example, if a wife works to pay for her husband to attend college, the former husband may be ordered to pay his former wife reimbursement alimony for the costs of college. The reimbursement alimony payments will only continue until the amount is paid off.
Finally, where the marriage is long or one spouse is ill, the court may order one spouse to pay permanent alimony, which will continue until the death or remarriage of the receiving spouse.
While alimony is typically paid on a month by month basis, some courts have begun to allow the paying spouse to pay one lump-sum alimony payment. Lump-sum payments are really only appropriate where the amount of payment is fixed, like rehabilitative or reimbursement alimony. However, if the divorcing spouses wish, they can agree on a lump-sum alimony payment where permanent alimony is awarded. A lump-sum payment, where possible, can often be beneficial to both parties. The receiving spouse has the money immediately and does not have to deal with payment issues in the future. The paying spouse benefits by paying the amount outright, and not having to worry about making monthly alimony payments in the future. However, there are negatives with a lump-sum payment. Most lump-sum payments are less than what the receiving spouse would receive if they elected to receive monthly payments. In addition, with the receipt of such a large sum all at once, the receiving spouse may have negative tax consequences.

Continue reading →

Contact Information