When someone is going through divorce proceedings, they usually have enough on their mind so that taxes are not something they spend much time thinking about. However, if your divorce settlement involves one partner paying the other spousal support (a.k.a. alimony), then the end of your marriage could have significant effects on your tax bill for years to come. Want to learn more? Read on to get advice from our family law attorneys on how spousal support affects your taxes.
Spousal Support and Taxes
Unlike child support, which does not count toward the recipient’s taxable income and cannot be deducted by the paying spouse, spousal support is considered both taxable income and a deductible expense. What this means is that the spouse who is ordered to pay spousal support will be able to deduct the money they are ordered by the court to pay their ex-spouse in alimony, and that the spouse who receives the alimony payments will have to report the money they receive to the International Revenue Service and pay taxes on it as if it were regular income.
When coming to an agreement about alimony or arguing in front of the court that your spouse should be required to make spousal support payments, keep in mind the effect that the additional income will have on your future taxes.
Is There a Way Not to Pay Taxes on Spousal Support Payments?
Yes – but the paying spouse must agree not to use the spousal support payments as a deduction on their taxes, and the agreement must be made an official part of the divorce decree. If you and your spouse are able to amicably negotiate your divorce agreement, and both agree that the alimony recipient should not have to pay additional taxes, then including language to that effect in the divorce decree should not be a problem.
If, however, the spouse who will be required to pay alimony does not agree to forgo the deduction, then all alimony payments the other receives will be taxable.
Benefits of Taxable Spousal Support
In some cases, keeping alimony as taxable income can have benefits, particularly to the spouse who pays them. Because the paying spouse will almost always have a higher income, they will likely be looking for any deduction they can to have their tax bill reduced at the end of the year. While this does require the spouse receiving alimony to pay additional taxes, most alimony payments are not large enough to significantly raise the recipient’s tax bill to a much higher rate than they would pay otherwise.
Additionally, some divorcees come to an arrangement where the spouse who deducts spousal support payments from their taxes agrees to make a yearly payment to their ex that covers their additional tax burden. This allows the higher income spouse to enjoy the benefits of additional deductions, without forcing the lower income spouse to take on additional costs.
These agreements are strictly informal (i.e., they will not be a part of the divorce decree), but can be arranged as long as both parties are amenable.
To speak with one of our knowledgeable Las Vegas divorce attorneys, call McFarling Law Group today at 702-565-4335.