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Divorce Payments and Taxes

If you are in the midst of divorce or have just determined the alimony and support payment plans that will follow you after your marriage is dissolved, you may be curious about the tax implications. According to Divorce Source spousal support is taxable to the payee and deductible for the payer. Child support is not. When it comes to spousal support it has to be pursuant to an order. This means that if you and an ex-spouse organize a spousal support payment plan outside of the court when it cannot be taxable. When spousal support is a court order, then there are still restrictions.

First of all, the spousal support needs to be paid in cash. The recipient of the money cannot live in the same home as the payer, and the spousal support must terminate on the death of the recipient. There are times that spousal support can be non-taxable. This happens when a pater cannot use the deduction or when the payer has sufficient deductions already. For example, if a paying spouse has a low income and cannot receive a deduction, or his income comes from non-taxable sources, then this may be a way to avoid taxes on the payments.

As well, if the recipient of the payments is in a higher tax bracket then the payer is this may be a reason to terminate the taxes on the payments. If the receiving spouse sells property to the payer after the divorce and doesn’t want the proceeds to be taxed as an income, there may be ways to avoid the taxes. One important thing to remember about spousal support is that it is not “free” money. It can be taxable in some circumstances, and there are also stipulations. For example, recipients must provide their ex with their social security number in order to continue payments. If they do not do this, then they may be charged $50 in fines by the IRS. If you want more information about spousal support and the tax implications, a Burbank family law attorney at Cutter & Lax is here to help!


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