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Do Alimony Payments Have Tax Implications?

Many divorcing couples are surprised to learn that alimony payments have federal tax consequences. In general, alimony is taxable to the spouse who receives support payments and is deductible by the spouse who makes support payments.

The Internal Revenue Services guidelines specify what is and is not considered alimony. For example, payments will be considered alimony if the spouses do not file a joint return with each other and all the following requirements are met:

  • The payment is in cash, as opposed to a noncash property settlement.
  • The instrument does not designate the payment as not alimony.
  • Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household.
  • There is no liability to make any payment (in cash or property) after the death of the recipient spouse.
  • The payment is not treated as child support.

Given the potential financial implications, divorcing spouses should consult alimony lawyers in Rhode Island when negotiating a divorce settlement involving alimony. An experienced attorney can thoroughly explain your options and help you secure an arrangement that protects your best interests.

In some cases, the parties may agree that the paying spouse will cover any potential tax liabilities incurred by the recipient. In other situations, divorcing spouses may specify in their divorce decree that otherwise qualifying payments will not be treated as alimony for tax purposes. As long as both parties agree to this, the payments are not deductible by the recipient or excludable from income by the paying spouse.

Finally, it is important to highlight that child support payments do not follow the same rules as alimony. The parent who pays child support cannot receive a deduction for payment and the receiving parent does not report the payment as income.

If you are navigating the complicated divorce process, you need a trusted advisor by your side. At Kirshenbaum Law Associates, we work hard to protect your financial future.