The tax impact of alimony, child support, unallocated support
When navigating through divorce, three key terms will appear regularly — alimony (also known as spousal support or maintenance), child support, and unallocated support (also known as family support or separate maintenance). It is important to know what these terms mean, why they exist, their tax implications, and how they will affect your divorce settlement for many years.
Alimony is a court ordered series of payments from the higher earning spouse in the marriage. These payments help the lower earning spouse ease into life post-divorce with financial help, although if both parties are employed there may not be a need for alimony. The amount of alimony is a subjective decision and can be negotiated between parties. Ultimately though, at an impasse, a judge could set alimony based on factors such as the length of the marriage, the economic variance of one spouse to the other, their ages, and their behavior in court. Alimony payments are tax deductible to the spouse paying them and taxable income to the recipient. Alimony may or may not be modified over time depending on the settlement arrangement.
Child support is also court ordered, although unlike alimony, it is not negotiable, except upwards. Strict statutes based on the “net income” of the non-custodial parent, number of children, health insurance costs and other variables determine these payments. They are not tax deductible payments to the spouse paying them, nor considered taxable income to the spouse receiving them and are always subject to modification.
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