What is Alimony?
Alimony is the amount paid for financial support to a former spouse. Up until 2019, the spouse that is paying the alimony can deduct the amount from their taxable income while the spouse receiving the alimony must add it to their taxable income.
What constitutes a payment to be Alimony?
- The spouses do not file a joint return together.
- The payment is in cash or check.
- The payment is to or for a spouse/former spouse made under a divorce or separation instrument.
- The divorce or separation instrument does not designate the payment as not alimony.
- The spouses are not members of the same household when the payment is made.
- There is no liability to make the payment after the death of the recipient spouse.
- The payment is not treated as child support or a property settlement.
New Rules around Alimony:
Starting January 1, 2019, alimony payments will no longer be deductible for the payor and alimony will not be included in income for the recipient spouse. What does this mean? It means that since in prior years the payment of alimony decreased taxable income, now the payor can no longer take a deduction thus increasing their taxable income. The spouse that receives the payments will receive them tax free. The exception to this is separation agreements that are made before January 1, 2019 which are grandfathered in and can continue to be tax deductible to the payor spouse.
For people who are currently going through divorces, the best advice would be to expedite the process. If you can get the divorce and separation instrument done before the end of the year, you will be able to continue using the old alimony tax law.