Divorced couples should note alimony changes for tax purposes

APPLETON, Wis. - March 7, 2019 - PRLog -- Determining the tax consequences that can arise during a divorce or marital separation can be vital for the financial protection and well-being of you and your family. That's why it's important to understand applicable tax laws before making any major decisions.

One of the most confusing tasks during the divorce process is determining whether a payment should be considered alimony or child support. Generally, alimony is the amount paid to a spouse for his or her living expenses, education, health or life insurance, property taxes or mortgage payment. Alimony is not for providing child support.

For 2019, under the Tax Cuts and Jobs Act, neither alimony nor child support are tax deductible. Furthermore, alimony is not gross income to the recipient. The alimony-paying spouse in divorces and legal separations executed after 2019 will not be able to deduct payments, and the alimony-receiving spouse won't include them in gross income or pay federal income tax.

The Tax Cuts and Jobs Act rules do not apply to existing divorces and separations. In this case, current rules continue to apply to the already existing divorces and separations, as well as divorces and separations executed before 2019.

In this case, the person receiving alimony must pay taxes on the payments received during the year, and the paying spouse may deduct the amount paid during the year, provided the payment meets the following conditions:

• The payment is made in cash or cash equivalent, which includes checks, bank deposits, etc. Payments in the form of such things as bonds, stocks, money market shares or actual objects are not considered alimony for tax purposes.

• The payment is made as the result of a legal separation agreement or divorce decree.

• The spouses do not live in the same household at the time the payment is made.

• The divorce decree does not designate the payment as nontaxable to the recipient or nondeductible to the payer.

• There can be no liability for payments after the death of the receiving spouse.

Child support, unlike alimony, is not taxable to the spouse who received the payment, nor is it tax deductible by the spouse who makes the payment. A divorce decree may specifically call the payment "alimony," but the payment may have the characteristics of child support, for example, the designation in the divorce document that the payment changes or terminates at certain milestones in the child's life.

Tax challenges during and following a divorce are common, but they can be minimized with some knowledge about tax laws and IRS procedures. Financial planning is an important part of the divorce process.

This article contains general tax information for taxpayers. Each tax situation may be different, so do not rely upon this information as your sole source of authority. The National Association of Tax Professionals (NATP) advises working with a trusted expert who keeps current on tax law changes and is an NATP member. To learn more about NATP or to find a registered tax professional near you, visit www.natptax.com.

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NATP is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of more than 22,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients.  The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers. The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.