Alimony

Alimony Considerations

Alimony (also known as spousal support or maintenance) can be requested by either spouse. Factors that go into a judge’s decision when awarding a settlement include:

• Length of marriage
• Time separated while still married
• Age and health at the time of divorce
• One spouse's contribution to the education or career of the other
• Contribution as a homemaker
• Income of both parties involved
• Future earning potential and financial situation of parties
• Property awarded
• Other income (such as investments)

Judges may consider any factors presented by either party in regards to an award if he/she considers it relevant. States vary on laws regarding awards and payments, so consult with a lawyer regarding your state’s rules. Unlike child support, spousal support is awarded based solely on the judge’s discretion and decision. It is not a mathematical equation.

In states that have “no-fault” divorces, support is usually only granted when one spouse has been dependent upon the other for a long marriage. In states where fault is a consideration in divorce proceedings, the fault can be taken into consideration when awarding alimony.

Types of Payments

Payments can be awarded in several different ways.

Permanent

This type of payment is made until the death or remarriage of the receiving spouse. Some agreements have a “co-habitation clause” that states support will end if a spouse lives with another instead of marrying, in order to avoid losing the payments. A lawyer or financial advisor can determine if carrying life or disability insurance is appropriate and whether it makes financial sense in the case of permanent payments.

Lump Sum

A lump sum payment is simply a one-time payment.

Temporary

Temporary payments are granted for usually a short period of time, five years or less in most cases. It is meant for spouses who are on basically the same income and earning level, but where one might need a little help starting out.

Rehabilitive

This payment is usually made when one spouse is considerably younger than the other. It is used where he/she eventually be able to return to the workforce and become self-supporting.

Tax Implications

Alimony can be deducted from the paying spouse’s income, and must be claimed as income by the recipient. Taxes can only be deducted from income if all of the following conditions are met:

• A joint return is not filed.
• The payment was made by cash, check, or money order.
• The divorce or separation agreement does not say that it is not alimony.
• Recipient and payer are not members of the same household while the payments are being made.
• No liability exists to make any payment after the death of a spouse.
• Payments are not treated like child support.

Forms 1040A and 1040EZ cannot be used when deducting or declaring payments. Form 1040 must be used. Alimony deductions go on line 31a, and the spouse’s Social Security number should go on line 31b.

For those who receive alimony and child support, only the alimony is taxable. Line 11 on Form 1040 should be used for declaring this income.

More information regarding taxes, consult the IRS Publication 504, Divorced or Separated Individuals.