Divorce, Alimony, Child Support, and Your Taxes
This year, the deadline is April 17 for federal and state returns.
If you were recently divorced and are paying or receiving alimony under a divorce decree or agreement, you need to consider the tax implication for your 2006 federal income tax return.
Alimony payments received from your spouse or former spouse are taxable to you in the year you receive them. Because no taxes are withheld from alimony payments, you may need to make estimated tax payments or increase the amount withheld from your paycheck.
Alimony payments you make under a divorce or separation instrument are deductible if certain requirements are met. Any payments not required by such a decree or agreement do not qualify as deductible alimony payments.
Child support is never deductible. If your divorce decree or other written instrument or agreement calls for alimony and child support, and you pay less than the total required, the payments apply first to child support. Any remaining amount is then considered alimony.
For more information, go to www.irs.gov.
Source: "Tax tip | Divorce Can Impact Taxes" published at The State. Thanks to Warren R. Shiell of the Los Angeles Divorce and Family Law blog for his post about this article.
Husband has paid alimony for the last ten years based on earned income at the time of the divorce. All property and financial assets were apportioned. Wife has imputed income of $15,000 and remains unmarried. In addition, the husband is required to hold life insurance in the amount of $250,000 which gets paid annually out of his income.
Given alimony in the state of South Carolina is infinite except for remarriage or death, if the husband retires or becomes disabled; is he still obligated to pay the over $2,000 a month alimony currently paid? I ask this because of statements that have been made suggesting the court would evaluate his current assets (investments, etc.)in determining ability to pay. I would vehemently argue that any review of present assets would be an attempt to double-dip on assets that have already been apportioned and because the present assets are jointly owned by the husband and new wife. In addition, the husband is supporting the two children of his new wife who has sole custody with one starting college and the new wife on sabbatical completing her degree paid out of her own savings.
Essentially, a family of four is living on $3,000 a month because 2,100 out of the second paycheck goes directly to the payment of alimony.
The loophole in South Carolina's alimony law is its infinite, non-terminable nature which is wide open for abuse by the recipient. While divorce is never nice and compensation is required to support the spouse who is earning less, other states allow for a stepped process over a specified period of time and does not leave alimony as an open-ended, lifetime expectation. It allows a fully able woman to avert employment that would pay significantly more than the $15,000 imputed in the divorce, nor is there any reason to change her marital status with a guarantee of $2,100 and a life insurance policy she can collect on the ex-husband's death to further guarantee income for life.