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 who has experience in guiding clients through these issues. Call us today at (732) 479-4711 to talk about your spousal support or child support.