Alimony

Definition

Alimony is a financial support payment made by one spouse to another during or after a legal separation or divorce. The purpose of alimony is to provide support to the lower-earning or non-earning spouse to help them maintain a similar standard of living to what they were accustomed to during the marriage.

Alimony payments are generally taxable to the recipient and tax-deductible for the payer, provided certain criteria are met. Specifically, alimony payments must:

1. Be made via cash or its equivalent.
2. Be made under a divorce or separation instrument.
3. Not be designated as non-taxable/non-deductible in the divorce or separation instrument.
4. Be paid when the spouses live in separate households.
5. End upon the recipient’s death.

Child support payments, on the other hand, are neither taxable nor deductible.

Examples

1. Monthly Alimony Payment: John is required to pay his ex-wife Jane $1,000 per month in alimony following their divorce. Jane must report this income on her tax return, while John can deduct it from his taxable income.

2. Lump-Sum Alimony Payment: In lieu of monthly payments, a one-time lump-sum alimony payment. If John agrees to pay Jane a one-time alimony sum of $50,000, Jane would still be required to report this as income, and John could deduct this from his taxes.

Frequently Asked Questions (FAQ)

1. Is alimony always required in a divorce? No, alimony is not required in every divorce. It depends on the court’s evaluation of factors such as the duration of the marriage, the financial condition of both spouses, and contributions made by each spouse during the marriage.

2. Can alimony payments be changed post-divorce? Yes, alimony payments can be modified if either party experiences a significant change in circumstances, such as a change in income or financial need.

3. Are alimony payments still tax-deductible after the 2017 tax law changes? For divorce agreements executed after December 31, 2018, under the Tax Cuts and Jobs Act (TCJA), alimony payments are not tax-deductible for the payer and are not taxable to the recipient.

4. What happens if the alimony recipient dies? Alimony payments typically end upon the death of the recipient, unless otherwise specified in a divorce agreement.

Related Terms

• Child Support: Financial support provided by a non-custodial parent to a custodial parent for expenses related to raising their child. Unlike alimony, child support payments are neither tax-deductible by the payer nor taxable to the recipient.

• Adjusted Gross Income (AGI): A measure of income calculated from gross income and used to determine how much income is taxable. Alimony payments made under agreements executed before 2019 may be deducted to find the payer’s AGI.

Online Resources

• IRS Alimony Information
• NOLO: Basics of Alimony Law
• LegalZoom: Alimony and Spousal Support Guide

Suggested Books for Further Studies

1. Divorce & Money: How to Make the Best Financial Decisions During Divorce by Violet Woodhouse, CFP, and Dale Fetherling
2. The Complete Guide to Protecting Your Financial Security When Getting a Divorce by Alan Feigenbaum and Heather Linton
3. Nolo’s Essential Guide to Divorce by Emily Doskow

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