Divorce is increasingly becoming a routine process and the number of successful divorce cases has shot through the roof recently. In 1900, only a mere .4% of the population claimed to be divorced against a massive 56% who were happily married. Things have however, changed if the statistics by the U.S Census Bureau of 2003 is anything to go by; there has been a tremendous influx in divorces up to 9.3%, which is about a 2,325% increase.
Alimony Unchanged: The swell in the rates of divorce has resulted into a more complicated Tax Code which has constantly been changing. However, the treatment of alimony has remained relatively constant. Other than some changes on the rules governing alimony in 1984, the alimony payments have been deductable on federal Form 1040, line 31 to the paying party and treated as income by the recipient for more than 70 years now. Alimony is treated as an “above the line” deduction which means that it can still be deducted without itemization.
Requirements: For purposes of federal income tax deductions, only legally divorced taxpayers or those under a separation order are eligible for alimony. On top of that, you need not to be sharing the same roof with your spouse/ex spouse when making the payment, unless bound by a court order. Also, it is not possible to claim alimony the very year you file a joint tax return with your soon to be ex spouse or spouse. An official agreement that demands the payment of support must be presented for alimony to be granted. The decree to support your wife shouldn’t necessarily be permanent as temporal decrees, interlocutory decrees, decrees of alimony pendente lite (awaiting a final decree “during the proceedings”) are all acceptable.
Voluntary Payments: Any payments that are voluntarily made and not compelled by a divorce or separation instrument are not eligible. Voluntary payments can be as a result of mutual understanding, feeling of moral obligation to make the payments or the ex-spouse is on your neck and the only way to shut him/her up is to pay some money to be left alone. Alimony ends with death, you shouldn’t be obliged to make any payments, be it in cash or property after your former spouse’s death.
Child Support: Child support, which is neither deductible to whoever pays nor treated as income to the recipient, cannot be characterized as alimony. There are times when you might make payments as alimony, only for the IRS to characterize payments made to your spouse/ex-spouse as child support, therefore losing deduction. You must therefore, understand the distinction between the two.
Finally, you need to understand that family law varies from one state to another. You therefore, may need to talk to a tax professional or a law attorney in your state before making any financial decisions regarding alimony, child support, or any other support.