Most people do not want to pay alimony so it can often be a contentious issue for warring spouses. On the other hand, most people accept their responsibility to support their children and usually don’t fight the concept of child support (although the amount may be contested). But alimony has some benefits to the payor spouse which should not be forgotten during settlement discussions.
Alimony is considered income to the recipient and is deductible to the payor. For many payor spouses, this could result in a significant reduction in their taxable income. According to the IRS website, the following are the formal requirements for alimony to qualify as a tax deduction:
- The recipient spouse and payor spouse must file separate returns
- Alimony payments must be made in cash (check or money orders)
- Alimony payments are received by the recipient spouse or on behalf of the recipient spouse
- The payments are not identified as something other than alimony in a divorce decree or written separation agreement
- The payments do not continue after the death of the recipient spouse
- The payments are not treated as child support or equitable distribution
- If legally separated, the recipient spouse and payor spouse are not members of the same household when the alimony payments are made
http://www.irs.gov/taxtopics/tc452.html
On the other hand, child support is never considered income to the recipient and is never a tax deduction for the payor. Additionally, when calculating the amount of child support to be paid, the New Jersey Child Support Guidelines consider the alimony being paid in fashioning an amount. In theory, if the spouse paying alimony is also paying child support, then the amount of child support should decrease as the amount of alimony increases.
So take a step back when negotiating alimony and speak to an experienced family law attorney so you can think creatively about how you can make it work for you and your circumstances. Maybe paying a larger sum of alimony will benefit you by reducing your overall tax liability. If you are the spouse looking to receive alimony, maybe this is a good negotiation point.
Posted by: Keri L. Greene
