Divorce can be a fresh start and welcome escape from a bad situation. However, new arrangements can be financially weighed down with heavy tax burdens. Someone who has just gotten out of a divorce will want to minimize their tax liabilities on alimony payments.
There are certain requirements for alimony payments to be considered tax deductible by the IRS. Related payments that don’t meet these requirements are considered part of the divorce settlement or child support, which are not tax deductible. These rules are applicable only to federal income tax, and some states may have different tax regulations.
Essentially, these requirements are designed to ensure that the payments are not child support, are paid in cash or cash equivalents, and are strictly alimony. Someone living in the same house with the former spouse after the divorce or legal separation violates the requirements. The payments must also stop if the ex-spouse dies as this would imply that the payments are not for the former spouse. These requirements may seem excessive. However, they are an attempt to prevent someone from claiming something as alimony that is not strictly cash or cash equivalent and/or not paid directly to, or on behalf of, the former spouse.
Divorce does not have to be a confusing process. A divorce lawyer can provide valuable advice about the sharing of accounts and help a client understand the laws regarding the division of property and asset valuation. The attorney can represent the client in closed-door meetings as well as official child custody proceedings.