Alimony Deductions and Taxes
Alimony is deductible by the payer and considered taxable income for the payee. It's important for both the payer and recipient to have alimony payments clearly defined in the divorce agreement.
The payer of alimony will not have to itemize the deduction since it's considered an "above the line" deduction.
A payment to a spouse under a divorce or separation agreement executed after 1984 is treated as alimony if it meets the following requirements:
- The payment is in cash, check or money order.
- The spouses are not members of the same household at the time the payments are made and the spouses are legally separated under a decree of divorce or separate maintenance.
- There is no liability to make any payment in cash or property after the death of the recipient spouse.
- The instrument does not designate the payment as not alimony.
- The spouses don't file a joint return.
- The payment is not treated as child support.
Why would I want to pay alimony?
Alimony or spousal support is a flexible financial tool for divorcing couples. It offers tax advantages that can be financially helpful to both spouses.
If you and your spouse have dramatically different incomes, there may be some tax advantages to using alimony for tax benefits.
For a higher paid spouse in a high tax bracket every deduction may be precious. Likewise a spouse with a substantially lower income in a lower tax bracket may not be affected much on their taxes or tax rate, as a recipient of alimony.
If you could claim the support paid as alimony, it's possible to pay your spouse more than enough to compensate for the extra tax they would have to pay, and still come out ahead.
I spend a great deal of time as a coach helping people think through whether they could use
alimony and have both the husband and the wife come out better after tax. Time and effort has
proven that it can be helpful and is worth looking into.
Be careful writing your divorce decree, an annulment or separation can complicate your tax return.