When getting married, a divorce is rarely on a person’s mind. Positive thoughts about a future life together take center stage. However, when the reality of life changes and a divorce does result, many serious issues can arise. Houston residents can find themselves struggling with decisions about parental relocation and visitation plans for minor children, property division and the payment of spousal support.
A high asset divorce can include several transactions that may affect one or both parties’ taxes. This impact may be for only the first year after a divorce or could last for multiple years. The sale of a family home, for example, can result in capital gains tax assessment. If a particular spouse is ordered to pay alimony, he or she would also be allowed to deduct the full amount paid every year from the total income considered to be taxable. On the flip side, a spouse that collects alimony every month must claim that money as income and pay full taxes on it.
Tax impact is one way in which child support and spousal support differ as child support has no tax implications whatsoever. It is simply an expense that the paying parent must budget for and accept. The receiving parent need not claim the money on tax returns. Couples that are tempted to have child support payments considered as alimony in order to reduce an overall tax bill should know that the Internal Revenue Service has a clear stipulation against doing so.
Learning what is allowable and what is not allowable in the world of divorce and post-divorce proceedings is important to help prevent unnecessary problems. Anyone considering a divorce may benefit from a consultation with an attorney to get more information about such topics.
Source: Forbes, “Alimony That Does Not Look Like Alimony,” Peter J. Reilly, April 30, 2014
