Taxation of Alimony – Part 5

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.