Alimony, also known as spousal support or maintenance, is a legal obligation on a person to provide financial support to their estranged spouse during and after a divorce or separation. The purpose of alimony is to mitigate any unfair economic effects of divorce by providing a continuing income to the lower or non-wage-earning spouse.
Taxation Rules
Taxable to the Receiver
Alimony payments are considered taxable income for the recipient under current tax laws. This means that the spouse receiving alimony is required to report these payments as income and pay taxes accordingly.
Deductible by the Payor
For the payor (the spouse making the alimony payments), these payments are typically deductible for income tax purposes. This allows the paying spouse to reduce their taxable income by the amount of alimony paid.
Change in Tax Treatment (Post-2018)
It’s important to note that for divorce agreements executed after December 31, 2018, the Tax Cuts and Jobs Act (TCJA) changed the tax treatment of alimony. For these agreements, alimony is no longer deductible by the payor nor taxable to the recipient.
Alimony vs. Child Support
Definition of Child Support
Child support is a separate financial obligation, aimed specifically at the maintenance and welfare of biological or adopted children from a marriage. Child support payments are not considered taxable income for the receiving spouse, nor are they tax-deductible for the paying spouse.
Non-taxable and Non-Deductible Nature
Unlike alimony, child support payments are not recognized for tax purposes; they do not affect either spouse’s taxable income.
Calculating Adjusted Gross Income (AGI)
Alimony’s Role in AGI
Alimony payments are included when calculating an individual’s Adjusted Gross Income (AGI). This is crucial as AGI is a determinant for eligibility for many tax credits and deductions.
Child Support’s Exclusion
Child support payments, however, are excluded from AGI calculations and do not influence the payer’s or the recipient’s AGI.
Types of Alimony
Temporary Alimony
This form of alimony is provided from the time of separation until the divorce is finalized.
Rehabilitative Alimony
Intended to support a spouse for a limited time to become self-sufficient (e.g., education or job training).
Permanent Alimony
Granted when the recipient spouse lacks the ability to become self-supporting due to age or health concerns, till the death or remarriage of the recipient.
Reimbursement Alimony
Designed to reimburse a spouse for expenses incurred (e.g., supporting the other spouse through education).
Considerations and Examples
Factors Influencing Alimony Decisions
- Length of the marriage
- Standard of living during the marriage
- Age and health of both spouses
- Financial condition and earning capacities
- Contributions to marriage (including homemaking and raising children)
Example Scenario
If a divorcing couple includes a spouse who was a homemaker for 20 years, the court may grant permanent or long-term rehabilitative alimony to allow the homemaker to achieve financial independence.
Historical Context
Traditionally, alimony was granted only to wives, based on the assumption that husbands were the breadwinners. Modern alimony laws, however, are gender-neutral and based on factors of need and ability to pay.
Applicability and Comparisons
Differences from Other Payments
Alimony should not be confused with a property settlement, which involves the division of marital property. It also differs from debts payments or voluntary spousal support not mandated by a divorce agreement.
Related Terms
- Marital Property: Assets acquired during the marriage and subject to division upon divorce.
- No-Fault Divorce: A divorce where the filing spouse does not have to prove wrongdoing by the other spouse.
FAQs
Is alimony always awarded in divorces?
Can alimony be modified after it is awarded?
How long does alimony last?
References
- “Tax Cuts and Jobs Act (TCJA),” Internal Revenue Service.
- “Understanding Alimony and Spousal Support,” American Bar Association.
Summary
Alimony is a critical financial aspect of divorce, providing support to the non-wage-earning or lower-income spouse. Its tax implications have evolved, particularly with changes introduced by the TCJA. Clear differentiation from child support and understanding various types of alimony help in comprehending its role in post-divorce economics.