Monday, December 7, 2009

Drafters beware - the deductability of alimony

When drafting a Judgment or Order regarding alimony and spousal support, drafters beware that the mere use of the word "alimony" or "spousal support" does not affect the tax consequences of the payment.

Under I.R.C. sec 215, payments made for alimony are allowed as a deduction. However, in order for payments to be tax deductible, the eight requirements of I.R.C. sec, 71 must be met.

The eight requirements of I.R.C. sec. 71 are:

1. The payments must be made in cash; (e.g. providing a car is not deductible)
2. The payments must be to a spouse or on behalf of a spouse;
3. The payments must be made pursuant to a divorce or separate maintenance instrument;
4. The payments must not be designated as non-qualifying by the payor or non-taxable to the recipient;
5. Spouses may not be members of the same household;
6. The payment must terminate at the recipient spouse's death;
7. Spouses may not file a joint return; and
8. The payment cannot constitute child support.

So drafters beware and understand the application of I.R.C. sec. 71.

A family law specialist does make the difference in accomplishing a client's goals.