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Tax Treatment of Spousal Support

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One of the statutory factors a court must consider in awarding spousal support is the tax consequences of the award. Generally, spousal support, referred to as alimony in the Internal Revenue Code, is taxable to the recipient and deductible by the payer. To qualify for that tax treatment certain prerequisites must be met.

The payments must be made pursuant to a writing such as a divorce decree or separation agreement and must be in cash or cash like form such as check or money order. The payments may be made to third parties such as a mortgage lender, so long as the payments benefit the spousal support payee. The payments must terminate upon the death of the recipient and can not, in reality, be child support. The parties must be living separate and apart or planning to do so soon.

Even if all the above conditions are met, the parties may, however, designate that the payments are not to be taxable to the recipient or deductible to the payer. Divorce courts also have authority to make that designation. The Internal Revenue Service will accept that elected or ordered tax treatment.

Although there is a statutory requirement for the court to consider the tax consequences of a spousal support award, parties and their counsel often fail to provide the court with sufficient information to make that determination. In a recent Harrison county, Ohio case known as Wharton v Wharton, wife claimed on appeal that the lower court failed to consider the tax consequences of its spousal support award. Neither party had presented direct evidence of the tax consequences.

The reviewing court agreed that the tax consequences were omitted from the lower court's findings.
After finding that the income from which husband was to pay support was substantially non taxable, it ordered that the payments were to be designated as non deductible to husband and non taxable to wife. To hold otherwise would have provided husband an unfair tax advantage.

It is incumbent upon parties and counsel to provide sufficient information to a court, so that the appropriate fair tax treatment of spousal support payments can be ordered, if not agreed upon by the parties.

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