Tax Implications - Divorce, Alimony, and Child Support
I am not, nor do I claim to be, a tax expert. However, I do get questions regarding tax implications when making divorce, child support and alimony decisions. I always recommend that my clients speak to their accounting professional, but I like to keep up with the most recent tax laws so I can fully serve my clients. It’s January and the April 15 deadline for filing taxes will be here before we know it. While the decisions that were made in 2019 are done and will have to be filed accordingly, but going forward you may want to make some modifications to receive the best tax benefits possible.
Any divorce agreement executed after 2018 or before 2019 but later modified if the modification states the repeal of the deduction for alimony payments applies to the modification are no longer deductible by the payer spouse. The spouse receiving the payments are no longer required to include the payments in his or her gross income. There are certain alimony or separate maintenance payments that are deductible by the payer spouse and must be included in the recipient spouse’s income. Although some things may fall under spousal support or alimony, you may be able to deduct the following from your taxes:
- If your home is jointly owned and you make all of the mortgage payments (principal and interest), then you can deduct half of the payments and your former spouse must include as alimony income. You can also claim as an itemized deduction half of the interest as interest expense.
- If you must pay, all of the real estate taxes and home insurance and the home is held as tenants in common then you can deduct half of the total payments and half of the real estate taxes and none of the home insurance can be claimed as an itemized deduction.
- Payments agreed upon by you and your former spouse that are designated as not alimony. The payments can be excluded from income only if a written instrument signed by both parties makes the designation and is attached to each year the designation applies.
The following are not tax-deductible:
- If the case where the home is held as tenants by the entirety or in joint tendency then you cannot deduct any of the payments. You can itemize all of the real estate taxes, but none of the home insurance.
- Life insurance premiums paid under the divorce or separation instrument for insurance on your life and your ex owns the policy are considered to be alimony and not tax-deductible.
Child support payments are not and never have never been tax-deductible. However, there are several factors to consider in addition to child support such as who will claim the dependency exemptions and child tax credit for any children that are dependents. For example, if one spouse’s income is too high to take advantage of the tax benefits, it may be smart to let the other spouse take the tax benefit. Often times, allowing a spouse to take the tax benefit is used in return for lower child support payments.
Regardless of tax laws, both alimony and child support that are awarded by a divorce decree, written agreement of separation or decree of support are legally required by law. Failure to pay either one of them can result in further legal action, including garnishment of wages, garnishment of tax refunds, fines and loss of privileges such as driver’s or professional license, passport privileges or jail time. Divorcing couples should recognize it is in both parties’ best interests hiring a knowledgeable divorce attorney from Kevin Hickey Law Partners and a knowledgeable tax expert will help you make the best decisions for your divorce case.