loader image

Tax Consequences for Spousal Maintenance

Tax Consequences of Spousal Maintenance Blog Post

There have been some changes to the way spousal maintenance works when it comes to taxes. In the past, spousal maintenance was deductible for the person who paid it and taxed by the person who received it. What are the tax consequences for spousal maintenance? Let’s find out.

Understanding Spousal Maintenance Today

In 2018, it changed. Now, spousal maintenance is paid with post-tax dollars. Those who are paying the spousal maintenance will pay the tax rather than the person who is receiving the maintenance. This is a massive change, and it has affected the amount of spousal maintenance awards in Mesa and other parts of Arizona. Since this was a federal change, it has affected the entire country.

When it was announced, many people were rushing to get their divorced finished and finalized before 2018. Why did the federal government make this change? People who were receiving spousal maintenance weren’t reporting it and paying taxes on that additional income. It was difficult for the government to track and tax the money. The government found that it would be much easier for them to get the money they were owed. It became a burden for those who were paying and a relief for those who were receiving the money.

Additionally, the people who were paying spousal maintenance before 2018 were typically in a higher tax bracket than those who received the money. Therefore, the government was receiving less money when the recipients were paying due to their location on the tax bracket. Now that the rules have changed, this is no longer the case. Now, the spouse that’s in the higher tax bracket is the one that is paying the taxes.

Can a Person Paying Spousal Support List It as a Tax Deduction from Their Income?

Unfortunately, if you are paying spousal support, you will not be able to make it a tax deduction. You have to pay tax consequences on spousal maintenance for the money that you pay in the same way that you do for child support. You don’t get any tax breaks for this. The person who receives the money gets it free and clear and will not have to report it on their income.

What Types of Payments Are Considered to Equalize the Distribution of the Couple’s Assets?

If you are receiving a rental property in your divorce and you are getting income from the property, then you would have to pay taxes on that income. This is separate from spousal maintenance.

For Tax Purposes, What Is Required for a Payment to Qualify as Spousal Maintenance? 

You must understand the difference between property division and spousal maintenance. If you have a family business and you are required to pay for your ex’s interest in the business, it is not spousal maintenance. It’s considered property division.

Spousal support is typically considered incremental payments that are usually made on a monthly basis. It can’t be property; it has to be actual cash. Additionally, you can’t be living together in the same household. The payment cannot be child support, and there can’t be any liability after death.

Payments that are made to a lender or on behalf of a debt may or may not be considered spousal maintenance. So, someone who is paying for medical bills, car repair, etc., of their ex may have it considered as spousal maintenance. However, this is not always the case. In the past, these types of things could be deducted, but that’s not the case any longer. All of the various creative ways that spousal maintenance has been used in the past do not matter. Today, it’s very cut and dry on who pays and how they pay and who is responsible for the taxes.

Most Important Things to Remember

With the way that everything has become simplified, it is somewhat easier to understand the taxes in your divorce, at least when it comes to spousal maintenance. Remember:

  • The person who pays the support will pay the taxes
  • The person who receives the support will not have to pay taxes and will not have to report the income

As you can see, there’s not a lot to it. In the past, things were far more complicated.

Do You Need to Speak with a Tax Specialist?

Since things are no longer as complicated as they once were, does this mean that you no longer need to talk with a tax specialist? Will you only need to work with an attorney? In the past, attorneys would always want you to work with a tax specialist when it came to spousal maintenance, as well as all of the other tax implications of divorce.

While it’s no longer a necessity to work with a tax specialist or accountant to understand spousal maintenance taxes, it’s still suggested that you work with a tax expert. There are still things such as property value transfers with divorce, so there are certainly still tax complications that can arise. Therefore, it’s in your best interest to work with a qualified attorney and with an accountant. They can make sure that you understand all of the tax implications when you are dividing property.

Work with a Good Attorney for Your Divorce

It’s important that you always have someone who is working on your side and looking out for you when you are getting divorced. Even if you feel that you are going through a relatively simple divorce, you will find that having an attorney working for you will make the process much easier. They can help you understand what’s happening at each step of the journey, specifically tax consequences for spousal maintenance. They can also work to ensure that you are being treated fairly and that you aren’t being manipulated to give up property or your rights in the divorce.

Take the time to find an experienced attorney in your area that knows your state laws and the federal laws when it comes to divorce and taxes. Even though divorce is never easy, it can go a lot smoother when you have a professional guiding you.

Recent Posts
Follow Us