While negotiating with your spouse about whether one of you should pay spousal support to the other, one factor you should consider is the tax implications. Those who have never paid or received spousal support before may not realize that it could affect their income tax bill, either positively or negatively.
Basically, spousal support, commonly known as alimony, is deductible for the former spouse making the payments. On the other hand, alimony is considered taxable income for an ex-husband or wife who receives it. Depending on each ex’s financial situation, alimony could be a mixed blessing.
The law will allow a person who pays spousal support to deduct the payments from his or her taxes if several conditions are true:
- You and your ex do not file your tax returns jointly.
- The payments are in cash, which includes checks and money orders.
- In cases of legal separation, you and your former spouse live in different households.
- Your payments will stop after the death of your ex.
- Your payments are not treated as child support.
As long as the paying ex can meet these conditions, his or her payments will be considered spousal support for tax purposes. However, child support is not deductible. Neither are property settlements, even if you are paying it off in installments. So be careful when choosing what to claim as a deduction.
This also means that whether or not to ask for alimony, or agree to pay it, could be part of a larger strategy. Most people going through divorce want to get as much as they are financially entitled to, while also minimizing their resulting tax bill.