What Is Spousal Support or Alimony?
Spousal support (also know as alimony) represents regular payments made from one spouse to the other during a separation or after a divorce. The purpose is to recognize the recipient spouse’s contribution to the marriage and to assist that spouse to achieve financial independence where possible.
The court assumes that you have kept the same ability to support yourself that you had before marriage. Each spouse is expected to be substantially independent and self-supporting within a short period of time.
Long marriages (generally over 5 years)
For long marriages, extended or even lifetime support may be ordered. The court takes into consideration a variety of factors such as:
- Each spouses assumed earning capacity
- The property and debts received by each spouse
- The physical and mental health of the receiving spouse
- Any disparity in earning capacity between the spouses
- Duration of marriage
- Other income
- Contribution to career or education
- Contribution as a home-maker
What Are the Different Types of Alimony or Spousal Support?
There are several arrangements of support. Each arrangement is based on the varying circumstances and needs of the individual.
- Rehabilitative alimony – Fixed spousal support paid for a specific period of time. This award is modifiable for upgrades in education or new work skills.
- Lump sum support – Some states allow a spouse to pay the total alimony obligation at the time of divorce. This amount is usually equal to the total amount of future monthly payments. A possible drawback of such an arrangement is that there may be significant tax consequences, so make sure you research all of your options with a professional.
- Permanent alimony – Support Payments for an indefinite period of time. Although there is no fixed date when support ends, it should not be expected that payment will be for life. In order to alter such an arrangement, you must petition the court for a change.
Can Support be Modified or Terminated?
Yes. There are different ways in which alimony can be modified or terminated (more information in the article Events that end payment obligations are:
- The death of either spouse
- The spouse receiving alimony gets remarried Events that may end or modify payment obligations are:
- Paying spouse is either retired or terminated from work
- Substantial increase in the income of the spouse receiving alimony
- Spouse receiving lives with another person romantically (cohabitation)
TAX ISSUES IN ALIMONY–ALERT!
Before the new Tax Cuts and Jobs Act (TCJA), payments that met the tax-law definition of alimony could always be deducted by the payer for federal income tax purposes. And recipients of alimony payments always had to report the payments as taxable income.
This treatment will continue for alimony payments made pre-2019 divorce agreements or judgments.
TCJA eliminates deductions for alimony payments!
For payments required under divorce or separation instruments that are executed after Dec. 31, 2018 the new law eliminates the deduction for alimony payments. Recipients of affected alimony payments will no longer have to include them in taxable income.
This TCJA treatment of alimony payments will apply to payments that are required under divorce or separation instruments that are: (1) executed after Dec. 31, 2018 or (2) modified after that date if the modification specifically states that the TCJA treatment of alimony payments (not deductible by the payer and not taxable income for the recipient) now applies.
For individuals who must pay alimony, this change can be expensive — because the tax savings from being able to deduct alimony payments can be substantial.
No change in tax treatment for payments required by pre-2019 divorce agreements (business as usual)
There’s no change in the federal income tax treatment of divorce-related payments that are required by divorce agreements that are executed before 2019. However, for these payments to qualify as deductible alimony, payers must still satisfy the time-honored list of specific tax-law requirements. If those requirements are met, alimony payments can be written off above-the-line on the payer’s federal income tax return. That means the payer does not have to itemize to benefit from the deduction. Payment recipients must include alimony payments that are required by divorce agreements executed before 2019 in their taxable income. So this is a continuation of business as usual.
When payments fail to meet the tax-law definition of alimony, they are generally treated as either child support payments or payments to divide the marital property. Such payments represent nondeductible personal expenses for the payer and tax-free money for the recipient.
Requirements for deductible alimony
Whether payments required by pre-2019 divorce agreements qualify as tax-deductible alimony or not is determined strictly by applying the applicable language in our beloved Internal Revenue Code and related regulations. In general, what the divorce decree says and what the divorcing couple might intend does not matter. For a particular payment required by a pre-2019 divorce agreement to qualify as deductible alimony, all the following requirements must be met.
- Written Instrument Requirement
- Payment Must Be to or on Behalf of Spouse or Ex-Spouse
- Payment Cannot Be Stated to Not Be Alimony
- Ex-Spouses Cannot Live in Same Household or File Jointly
- Cash or Cash Equivalent Requirement
- Cannot Be Child Support
- Payee’s Social Security Number Requirement
- No Obligations for Payments to Continue after Recipient’s Death
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