TAX EFFECT OF ALIMONY

Alimony, also known as spousal support, is an issue that comes up frequently in divorce actions. Generally, alimony is awarded to a non-bread winning spouse to maintain his or her standard of living, to support him or her for a period of time, or as rehabilitative payments to help the spouse get on his or her feet.

Prior to December 31, 2018, alimony was tax deductible to the payor, or paying spouse, and required to be reported as income by the payee, or receiving spouse. Final Judgments and Decrees of Divorce or other court orders awarding alimony entered prior to December 31, 2018, are grandfathered in to require the spouse receiving alimony to claim this alimony as income on his or her tax returns. This was characterized differently than child support, which has never been reported as income.

Additionally, permitting the paying spouse to deduct the alimony from his or her income was a huge benefit to the paying spouse. Alimony payments came off the top of the payor’s taxable income for the tax years in which alimony was paid.

However, the tax code changed beginning January 1, 2019, changing this rule regarding alimony. Alimony is no longer tax deductible to the payor or considered income to the payee. Alimony is now treated like child support. This change in the law removed a huge benefit from the payor, who will be paying a portion of his or her net income, yet taxed as if they received that money themselves. The payee benefits substantially by no longer having to claim any income from the alimony payments – meaning the payee does not pay taxes on their money. This is especially beneficial to a payee receiving a substantial amount of alimony over a long period of time, or their lifetime.

To learn more about alimony and what to seek in your divorce action, give us a call at 770-939-1939.