Alimony Taxation – Part 8

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Alimony, also known as Spousal Support in California, is GENERALLY deductible to the payor and taxable income to the payee. I highlighted the word generally because the mere use of the term Alimony or Spousal Support in a settlement agreement does not affect the tax consequences of payments. Internal Revenue Code Section 71 contains eight requirements that must be met for a payment to be considered taxable to the recipient and tax deductible to the payor. I will review all eight in the coming weeks.

REQUIREMENT # 8 – CHILD SUPPORT PAYMENTS CANNOT QUALIFY

I.R.C. 71(c)(1) provides that a payment is not includable in the payee’s gross income or deductible by the payor spouse, to the extent that “the terms of the divorce or separation instrument fix (in terms of an amount of money or part of the payment) as a sum which is payable for the support of children of the payor spouse.”

CHILD CONTINGENCY RULES

(2) For purposes of paragraph (1), if any amount specified in the instrument will be reduced — on the happening of a contingency specified in the instrument relating to a child (such as attaining a specified age, marrying, dying, leaving school, or a similar contingency), or at a time which can clearly be associated with a contingency of a kind an amount equal to the amount of such reduction will be treated as an amount fixed as payable for the support of children of the payor spouse.

Alimony Taxation – Part 6

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Alimony, also known as Spousal Support in California, is GENERALLY deductible to the payor and taxable income to the payee. I highlighted the word generally because the mere use of the term Alimony or Spousal Support in a settlement agreement does not affect the tax consequences of payments. Internal Revenue Code Section 71 contains eight requirements that must be met for a payment to be considered taxable to the recipient and tax deductible to the payor. I will review all eight in the coming weeks.

REQUIREMENT # 6 – THE PAYMENT MUST TERMINATE AT THE RECIPIENT SPOUSE’S DEATH

I.R.C. § 71(b)(1) provides that the “term alimony or separate maintenance payment” means any payment in cash if —

(D) There is no liability to make such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property ) as a substitute for such payments after the death of the payee spouse.

 

Gray Divorce: The Question of Alimony

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I was recently interviewed for an article written by Caryn Brooks for Reuters. The article, titled “Gray Divorce: The Question of Alimony” seeks to understand what if any difference there might be in decision-making regarding Alimony and Spousal Support in Gray Divorces.

Gray Divorce refers loosely to the dissolution of marriages when the parties are over the age of 55. I make no judgments as to whether a certain age makes a divorcee old. I do however believe there are many financial complications and intricacies to the dissolution of marriage at a later stage in life. I will review many of these issues, concerns and questions in detail over coming months in my Gray Divorce series.

The Reuters article quotes a Massachusetts attorney, Garbrielle Clemens, who shared the story of two of her clients “forgoing alimony in order to front-load money in case their ex-spouse can’t come up with the payments down the line”. Click on the link above to learn a little about my opinion regarding the front loading and/or buy-out of Spousal Support in long term marriages ending in Gray Divorce as well as some practical thoughts when considering it as an option.

 

 

Taxation of Alimony – Part 5

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Alimony, also known as Spousal Support in California, is GENERALLY deductible to the payor and taxable income to the payee. I highlighted the word generally because the mere use of the term Alimony or Spousal Support in a settlement agreement does not affect the tax consequences of payments. Internal Revenue Code Section 71 contains eight requirements that must be met for a payment to be considered taxable to the recipient and tax deductible to the payor. I will review all eight in the coming weeks.

REQUIREMENT # 5 – SPOUSES MAY NOT BE MEMBERS OF THE SAME HOUSEHOLD AFTER THE FINAL DECREE OF LEGAL SEPARATION, DIVORCE OR SEPARATE MAINTENANCE

I.R.C. § 71(b)(1) provides that the “term alimony or separate maintenance payment” means any payment in cash if —

(C) In the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made.