Do you know the tax implications of alimony?

Do you know the tax implications of alimony?

In a divorce case where one party has been ordered to pay alimony, commonly referred to as spousal support, the tax implications for giving and receiving alimony may be unclear to the parties. Michigan residents may be unfamiliar with the Internal Revenue Service requirement of alimony.

Generally, following a divorce between two individuals either under their divorce decree, a separate maintenance order or a separation written agreement between the parties, a certain amount may be paid to an ex-spouse on a monthly basis. The IRS considers it alimony paid when a joint return is not filed by the parties; the amount is paid in cash, by check or money order; the monies go to a former spouse; the divorce decree specifically notes that such a payment is not alimony; the parties are not living in the same household; and such payments are not considered to be child support or as part of some property settlement.

Where alimony payment may be part of the divorce proceedings, it is important for parties to keep in mind that alimony payments are completely separate from any child support payment and are not considered to be part of any noncash property agreements. The party paying alimony may deduct the amount paid from their income. The party receiving alimony payments is required to report alimony they received as income. It is important to understand that child support payments are never tax deductible. Additionally, if a party is required to pay both alimony and child support and one pays less than the required amount then any payment is first automatically applied towards child support. The remainder, if any, is considered to be alimony.

Family law cases involving the need for alimony can be confusing and get complex. Michigan courts consider several factors in determining whether alimony is appropriate or not. It may help those parties who are in a divorce case where alimony discussions have arisen to talk with a family law attorney for more information.

Source: IRS, “Topic 452 – Alimony Paid,” Accessed November 18, 2014

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