If you have been married for a significant period of time and earn more money than your spouse, you will most likely have to pay alimony after divorce. Fortunately, alimony is tax deductible for the party who pays. The following is a discussion of the criteria that must be met to render support payments to your ex-spouse tax deductible as alimony.
Alimony, also known as “spousal support”, is tax deductible for the party who pays and taxable for the party who receives. However, in order for alimony to be tax deductible your payments must comply with strict IRS regulations.
When Is Alimony Tax Deductible?
In order for payments to your ex-spouse to be considered alimony, an thus tax deductible, several criteria must be met:
1.Payer and payee must not live together.
2.The alimony must be specified in your divorce decree or divorce settlement. Alimony specified in other court orders, such as an Oklahoma separation order, also meet this criteria.
3.The decree or settlement must state that the alimony will be treated as tax deductible for the payer and taxable for the payee. The payer can deduct the amount of alimony he has paid from his taxes but the payee must declare the same amount as taxable income.
4.Payments must go to an ex-spouse in the form of cash, check or money order. Alimony may also take the form of real or personal property, but only monetary awards will be tax deductible. The transfer of services or property will not be considered deductible.
5.Alimony payment amounts must not be higher in the first three years than they are later on. Alimony is tax deductible, but other forms of support or reimbursement to an ex-spouse are not. So, the IRS will closely examine the payments you make in the first three years after divorce to insure that you are not disguising other forms of support or reimbursements as alimony in order to receive higher deductions.
6.Alimony payments cannot be linked to anything having to do with raising your children. Alimony is tax deductible but child support is not. Therefore, when you reach a divorce settlement it is very important that you do not to mix the terms of your alimony payments with any support for your children. For example, the termination of your alimony payments should not be linked to your children reaching a certain age. Do so and you will run the risk of the IRS disallowing your deductions as form of child support, which in turn may result in you being sued for back taxes.
If your alimony payments can meet these strict criteria, they should be tax deductible. On the other hand, it is possible to purposefully render alimony non-taxable if neither party includes the alimony in their taxes. This may be useful in rare cases where the payer does not need the deduction and payee does not want to report the income. For example, when the payee is in a higher tax bracket than the paying party and wants to avoid the tax burden. But in order for this to be legal, it must first be agreed to by both parties and declared in the divorce decree.
Free, No Obligation Consultation:
Tulsa Oklahoma Alimony Attorney
To find out more about alimony in Oklahoma, contact the family law attorney at Divorce Law Office of Tulsa: 918-924-5526. We offer free, no obligation consultations. If you prefer you may send your question using the “Ask the Lawyer” form on the right side of this page.