Tax Ramifications of Divorce, Alimony, and Child Support
If you are getting divorced, aside from the complications of dealing with the divorce process and any child custody and support issues, you also have to worry about the tax ramifications of any financial arrangements that you make. For example, few people realize that while alimony (and/or “maintenance” under Florida law) is tax deductible, child support is not. And while alimony payments are taxable to the recipient of these payments, any amounts received for child support are tax free.
All of these details are important during any negotiations, as your expectations and any agreements between you and your ex-spouse should reflect an understanding of the financial and tax implications of the agreements.
Tax law and IRS regulations
Because of the way that tax law and IRS regulations are written, alimony payments must meet certain requirements in order to be tax deductible (hence necessitating the assistance of an experienced divorce attorney to guide you in any agreements you sign). For example, payments must be made via cash or cashier’s check, received by your ex-spouse under the guidance of an official agreement, and in accordance with the law (i.e.the agreement cannot declare them nontaxable for the recipient, for example).
Because alimony payments are tax deductible for the giver and must be reported as income for the receiver, clearly they can affect the tax bracket that an individual is in.
Florida Law—Types of Alimony
In Florida, there are several types of alimony, including:
- Permanent; or
- Any combination of the above.
In determining whether to award alimony or maintenance, the court first decides if either alimony or maintenance is needed, and if it is, the court considers the following factors in coming up with the amount(s):
- Standard of living established during marriage;
- Duration of marriage;
- Age and physical and emotional condition of each party;
- Financial resources of each party;
- Earning capacities, education levels, etc. of each party;
- Contribution of each party to the marriage;
- Responsibilities each party will have regarding children;
- The tax treatment and consequences to both parties of an alimony award (including the designation of all or a portion of the payment as a nontaxable, nondeductible payment);
- All sources of income available to each party; and
- Any other factor necessary to do justice between the parties.
Adjusting Alimony and Child Support Orders
While both alimony and child support can be adjusted, the court takes an extra factor into account when deciding on child support payments: the child’s best interest. Thus, while alimony can be adjusted based on salary changes, that does not necessarily mean that the court will adjust child support payments if any deduction would not be in the best interest of the child.
Contact Us about Spousal Support
If you are dealing with divorce and need assistance, we can provide the legal advice and counsel that you need to get you through the process and ensure that you are complying with all of the legal and financial requirements. Contact Sandra Bonfiglio, P.A., to schedule a consultation in Fort Lauderdale today.