Alimony And Taxes
Alimony, which is also known as spousal support, is one of the most difficult areas of New Jersey divorce law. Alimony is a regular payment made from one ex-spouse to another after a divorce. It was originally meant to help support women after a divorce, but New Jersey alimony laws are now gender-neutral and either spouse may receive alimony.
There are also tax implications for alimony. Time Magazine reports that alimony can help lower a tax bill for the spouse paying alimony because it is an above-the-line deduction. This means that the paying spouse does not have to itemize on his or her return to get the advantage of the deduction.
Like many things in the tax and divorce world, many rules and exceptions do exist for alimony. For example, an alimony payer cannot deduct alimony paid to an ex-spouse that still lives in the same home. Therefore deciding to stay with an ex-spouse to save money may end up costing that spouse a lot of money during tax season.
For tax purposes alimony payments must also be made pursuant to a written separation or divorce agreement, Time Magazine reports. These payments cannot be considered child support. This typically impacts couples who are in long divorce proceedings involving money disputes or child custody battles.
Alimony is also not awarded in every divorce. Factors in determining whether alimony is appropriate include:
- What assets were brought in and are being taken out of the marriage;
- The length and standard of living during the marriage;
- The health and earning capacity of each spouse.
Alimony is not determined using a formula and is not a required to be awarded. Therefore alimony awards vary by county and judge. An experienced divorce attorney can help navigate the complicated alimony laws and help achieve an alimony and tax outcome that is most appropriate for a client.
Source: Time, “Divorce and Taxes: Five Things You Need to Know,” Kelly Phillips Erb, 3/6/11