The tax consequences of spousal support

If you are like many individuals divorcing in 2016, you are considering the tax implications of divorce.  Alimony or spousal support payments can provide a huge tax benefit, especially if the payor (person paying support) falls into AMT or Alternative Minimum Tax bracket. This is because your alimony payments are taken from the above the line calculation or subtracted from your gross income for the purposes of establishing your income tax bracket. You can take advantage of this tax benefit even if you have not yet received a final divorce decree.

Unfortunately, many clients hire a family law attorney after they have a back of the envelope or kitchen table deal with their ex-spouse. These agreements include spousal support or cash payments from one spouse to another, however, not all of these payments are considered spousal support and tax deductible.

In order for a Spousal Support payment to be tax deductible, there needs to be a signed agreement dated prior to the date of the first support payment is made.

This agreement needs to satisfy all of the IRS Section 71 requirements, which includes:

1) describing payments as an alimony or separate maintenance payment
2) describing payments as part of a separation agreement
3) saying that payments wouldn't be paid in the event of (after) the death of the payee spouse

If you are considering divorce and know that there will be an amount of spousal support between you and your spouse, we recommend you contact a Bay Area Family Law attorney to make sure that the payments can be deductible.  

Contact me at amanda@gordonfamilylaw.com for more information.