Alimony payments can affect taxes

In a Georgia divorce case in which there is a large disparity in income between the spouses, or where one of the spouses has a limited work history, alimony may be appropriate. If alimony is ordered, the payments may have an impact on each spouse's taxes, and they should plan accordingly.

The payment of alimony has tax implications that allow the payor spouse to deduct the payments from their gross income, while the receiving spouse must add it to theirs. In order for these tax consequences to apply, it must be clear the payments are for alimony, and not child support or some other purpose. The payments must meet the requirements of alimony, such as ending upon the death of the receiving spouse, rather than, for example, upon a child's graduation. If such requirements are present, the spouses can explicitly state that the payments are not to be treated as alimony, which is effective for tax purposes. However, if the requirements are not met, a statement that the payments should be treated as alimony has no effect regarding taxes.

The intent of alimony payments is to minimize any negative financial impact of a divorce on the lower-income spouse. Whether or not alimony is awarded is dependent on many factors including the standard of living enjoyed during the marriage, the duration of the marriage and the assets of each party, among others. Alimony can be either rehabilitative or permanent. Rehabilitative alimony is applied to allow a lower-earning spouse to receive sufficient education to raise their income level and is expected to be unnecessary after adequate employment is achieved. Permanent alimony is to be paid until a court orders otherwise, either because of the death or remarriage of the receiving spouse.

If alimony is awarded after a divorce, both spouses should be aware of the tax consequences of these payments. A family law attorney can assist those going through a divorce with the alimony process and the rights and responsibilities associated with such payments.

Source: Forbes, "Alimony That Does Not Look Like Alimony," Peter J. Reilly, April 30, 2014