TAXES – ALIMONY AND CHILD SUPPORT

Financial ties between spouses or partners can last many years after the
dissolution of a marriage or the end of a relationship. This can be due
to division of pensions, real estate, or personal property. Often there
are tax implications at the end of a relationship due to an award of spousal
support or child support. Understanding potential future tax issues will
assist you in creating a strategy for your divorce or custody matter.

Most potential alimony payors in a divorce dread the potential for an award
of spousal support to their soon to be ex-spouse. However, spousal support
payments are tax deductible for the paying spouse, which can end up being
a large tax deduction, depending on the size of the spousal support award.
If you are the receiving spouse, then the spousal support is considered
income for tax purposes. In other words, you will have to pay income tax
on the amount of spousal support you receive. In order for the paying
spouse to properly file income taxes, he or she will need the social security
number of the spouse receiving payments. The spouse receiving payments
is required to provide his or her social security number, or there could
be a penalty imposed. Keep in mind that spousal support is only treated
this way for tax purposes if your divorce decree specifically states that
the payments are spousal support. If they are characterized a different
way, these rules do not apply. For these reasons, it is very important
that your settlement agreement is carefully drafted with consideration
of these tax issues.

Child support is treated totally differently than spousal support with
regard to taxes. Child support is not tax deductible by the payor and
it is not taxable as income to the recipient. This is true even if the
paying person pays child support and alimony with one check. Only the
portion that is spousal support may be written off on taxes. In addition,
if you are behind in child support and your support is paid through the
state child support office, it is likely that any tax refund you would
have received will be seized by the state in order to off-set your child
support arrearages. This is true even if you file your taxes jointly with
a new spouse; the state will seize the entire tax refund, not just the
refund that is attributable to your income.

Understanding the tax implications of a divorce or child support award
is complicated. You need to discuss your case with an attorney
in guiding clients through these issues. Call us today at (732) 479-4711
to talk about your spousal support or child support.