| Alimony
payments are deductible only if they meet the requirements outlined
below. It is important to have your divorce decree or separation
agreement reviewed for tax purposes before it becomes effective
to make sure these requirements are met. Even if the decree
or agreement specifies that the payments are alimony they won’t
be treated as alimony for tax purposes
unless these requirements are satisfied. Please call me to arrange
for such a review before signing off on the arrangement. Here
are the alimony requirements:
 No
voluntary payments: For an alimony payment to be deductible,
it must be required by a divorce or support decree or a written
separation agreement.
Cash
only: Only payments of cash qualify as deductible alimony.
The cash can be paid either directly to the spouse or can
be paid on the spouse’s behalf under the terms of the
instrument to cover an expense such as rent or the mortgage.
Payments
to stop at death: For the payments to qualify as alimony,
the payments must be required (under the instrument or by
law) to stop when the spouse dies. Many individuals seek to
have the payments stop at the remarriage of the spouse as
well. This won’t prevent deductibility, but isn’t
a requirement for deductibility. (Note: if the payments are
to continue after the spouse dies, then none of the payments
— including those made while the spouse is alive —
are deductible.)
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Separate
living arrangements: If you’re making payments under
a divorce decree, you must be living apart from your spouse
for the payments to qualify as alimony.
Distinguish
child support: Payments made for child support are not deductible.
This includes payments clearly fixed in the instrument as
child support. It also includes, how ever, payments which
the instrument calls alimony but which are linked to a contingency
relating to the child. For example, if the “alimony”
required to be paid monthly is $1,500, but drops to $1,000
in (or near) the month in which the child becomes 18, the
“extra” $500 a month will be treated as nondeductible
child support.
Getting your spouse to agree to take alimony instead of child
support can cut your taxes substantially. However, the alimony
is included in the spouse’s taxable income while the
child support isn’t. Thus, you must first determine how
much the deduction will save you in taxes. Then, in your negotiations,
you can offer your spouse a portion of your savings in the
form of additional alimony, to get your spouse to agree. For
example, you can offer $1,000 a month in child support, but
be willing to pay, say, $1,200 a month if she consents to
have the payments qualify as alimony.
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