When Can I Deduct Alimony on my Federal Tax Return?

Tax return paper
When divorce occurs, one ex-spouse is often obligated to make continuing payments to the other spouse. However for the payments to be deducted by the payer, they must meet the tax-law definition of alimony.

For any particular payment to qualify as deductible alimony for federal income tax purposes and meet the tax law definition of alimony, all the following requirements must be met:

1. The payment must be made pursuant to a written divorce decree or separation instrument such as a temporary support order.
Note that payments made in advance of signing a written divorce or separation instrument or before the effective date of a court order or decree cannot be deductible alimony. Such payments are considered voluntary and are therefore nondeductible. The same is true for payment of amounts in excess of what is required under a written divorce decree or separation instrument.

2. The payment must be to or on behalf of a spouse or ex-spouse. Therefore, payments to third parties, such as attorneys and mortgage companies, are okay if made on behalf of a spouse or ex-spouse and pursuant to a divorce decree or separation instrument.

3. The divorce decree or separation instrument must state the payments are alimony.

4. After divorce or legal separation (meaning the couple is considered divorced for federal income tax purposes), the ex-spouses cannot live in the same household or file a joint return for the year they separated or thereafter.

5. The payment must be made in cash or cash equivalent such as check or money order.

6. The payment cannot be fixed or deemed child support in the divorce decree.
Fixed child support simply refers to amounts designated as such in the divorce or separation instrument, so it’s easy to identify. Payments are considered to be deemed child support if they are terminated or reduced by any of the following so-called contingencies relating to a child:

a. Attaining the age 18, or the local age of majority.
b. Death.
c. Marriage.
d. Completion of schooling.
e. Leaving the ex-spouse’s household.
f. Attaining a specified income level.

7. The payer’s return is required to include the recipient’s social security number.

8. The obligation to make payments (other than payment of delinquent amounts) must cease if the recipient party dies. If the divorce decree is unclear about whether or not payments must continue, state law controls. If under state law, the payer must continue to make payments after the recipient’s death, the payments cannot be alimony. Therefore, to avoid problems, the divorce decree should always explicitly stipulate whether a payment obligation continues to exist after the death of the recipient party. Failing this test is probably the most common cause for lost alimony deductions.

What happens when payments to an ex-spouse fail to meet the tax-law definition of alimony? They are generally treated as either child support payments or as payments to divide the marital property (equitable distribution). Both types of payments are nondeductible personal expenses for the payer and tax-free income for the recipient.

Since payments to ex-spouses are often substantial, the issue of whether the payer can deduct them is often substantial too. Therefore, it is very important to consult a tax attorney like Gregory J. Spadea before signing the divorce decree. You can reach him at Spadea & Associates, LLC in Ridley Park at 610-521-0604.

What is Spousal Support and or Child Support and How Much Do I Need To Pay?

Writing A Check
Divorce/Separation and Spousal Support:  There are three types of spousal support.  The first two are support and alimony pendent lite (APL).  The third is alimony.

Spousal support obligation arises out of the marriage relationship.  Support may be awarded prior to the commencement of divorce proceedings and during the separation/estranged phase.  Alimony pendent lite (APL) can only be awarded after the commencement of divorce proceedings but prior to a divorce decree.  The main difference between the two is the timing of the filing for divorce and the defenses that may be claimed.  Generally there are no defenses to a claim for APL while a person may have a defense precluding a spouse from asserting the need for spousal support.  Defenses that may be asserted as grounds for divorce are also defenses to spousal support such as adultery and cruel and barbarous treatment.  Therefore, a spouse that has committed adultery may not be entitled to receive support during the separation phase but could quite possible receive APL once the divorce action is filed.

Spousal support and APL are calculated the same.  The formula takes into consideration the Obligor’s net monthly income minus support payments obligor may have as result of other dependents or former spouses minus child support payments from current litigation minus obligee’s net monthly income multiplied by thirty (30%) percent.  If the parties have no children or child support orders the number would be multiplied by forty (40%) percent.  This formula has been adjusted to require the court to consider the length of marriage in determining its award.  The primary purpose of this provision is to prevent the unfairness that arises in a short-term marriage when the obligor is required to pay support over a substantially longer period of time than the parties were married and there is little or no opportunity for credit for these payments at the time of equitable distribution.

The third type of support is alimony.  The purpose of alimony is to effect economic justice, but it is a secondary remedy and applies only if economic justice cannot be achieved by way of equitable distribution.  This type of an award is rendered post divorce decree to achieve such justice.  There is no formula Pennsylvania courts use to assist in its award.  Rather courts will rely on the seventeen subjective factors listed in 23 Pa. C.S.A. § 3701 (b).  Some of those factors are: length of the marriage; the ages and physical, mental and emotional conditions of the parties; sources of income of the parties; earning capacities of the parties; the earning powers of the parties and the relative needs of the parties.

Child Support: These are payments due to the support of the child regardless of marital status.  Pursuant to federal law, The Family Support Act of 1988 (P. L. 100-485, 102 Stat. 2343 (1988), requires all states to have statewide child support guidelines.

The guidelines take into consideration the parents’ net monthly income.  Once that figure has been determined the guidelines state what the support payments are monthly.  The total payments increase with each child.  The parties are responsible for that suggested guideline figure.  That total figure will be divided according to the percentage of time the child is with their respective parent.  These figures can also be reduced if there are any ongoing support obligations.  Any deviations are based upon a case by case basis.

If you have any questions or need a divorce attorney contact Spadea & Associates, LLC at 610-521-0604.   We suggest you bring your W-2 and last three pay stubs when you come for you free consultation.

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