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The Tax Man Comethand Often He Takes Away

When parties are in the midst of divorce proceedings, it may become necessary for an order to be entered regarding support – either alimony or child support or both. Often, however, Courts also enter orders for “unallocated” support, meaning they are not calling it alimony or child support but they are intending for it to cover the needs of the dependent spouse who also happens to have primary care of the children. In most traditional cases, the stay-at-home mom who has raised the children now seeks support from her estranged spouse, whether they continue to live together or not, to help her cover her personal expenses and those of the children. Many times, the Court finds it unnecessary to differentiate between the two categories, which could lead to a nasty surprise come tax time.

If you do not have an Order that specifies which portion of the support is alimony (and therefore taxable under the Tax Code) and which is child support (and therefore non-taxable), this temporary unallocated support will be considered taxable income to the recipient in NJ in accordance with the Third Circuit opinion in Kean v. Commissioner, 407 F.3d 186 (3rd Cir. 2005). This may happen if you do not file a joint tax return in the year that you receive this unallocated support.

In this instance, therefore, labels become very important and it would be advisable to discuss this issue with your seasoned attorney so you know exactly what the implications are of your support award might be and how it could affect you in the future. This blog is for informational purposes only and is not intended to be construed as accounting or legal advice as every situation is unique.

Posted by Elizabeth A. Calandrillo, Esq.