Spousal Support and Income Taxes

 Posted on August 12, 2015 in Spousal Support

The Internal Revenue Service recently released supplemental guidelines regarding spousal support payments and income tax consequences.

These payments are tax-deductible, but the IRS will scrutinize the deduction to ensure that the tax return meets certain qualifications. An obligor spouse must make payments in cash or cash equivalent directly to the obligee spouse; these payments are specifically designated as "maintenance" in the temporary or final order; the spouses are physically living in separate households; and the obligation ends upon the payor spouse's death.

"Alimony" does not include voluntary payments or use of property, and the obligor spouse does not have to itemize to claim a deduction.

Spousal Maintenance Eligibility

If followed to the letter, payments under Chapter 8 of the Family Code qualify for tax purposes. It is a popular myth that the payments must be periodic or equal; unequal or lump sum transfers may also qualify as alimony in a high-asset divorce.

Although the legislature expanded the law recently, the judge must still enter a finding that the other spouse was convicted of family violence assault or that, due to a disability or care of a minor disabled child, the requesting spouse lacks the resources to provide for "minimum reasonable needs," a phrase that the statute does not define. In some cases, the marriage must have lasted at least 10 years.

Moreover, there is a presumption that maintenance is inappropriate unless the requesting spouse has "exercised diligence" in attempting to overcome the disability. Once again, this phrase is not defined in the law.

Amount and Duration of Payments

After answering these threshold questions, the inquiry turns to the amount and duration of payments. There are caps in both areas: the amount cannot exceed 20 percent of the obligor spouse's average monthly gross income, and the maximum duration is tied to the length of the marriage.

To determine the specific duration and amount, the judge considers a number of factors, including each party's:

• Current and future financial status;
• Duration of the marriage;
• Relative age and health;
• Non-economic contributions;
• Waste of marital assets; and
• Fault in the breakup of the marriage (most states do not include this provision).

This list is by no means exhaustive, as the judge may consider "all relevant factors" to make a determination.

Spousal maintenance is typically an important component in a high net worth divorce. For a consultation with an aggressive Williamson County divorce attorney, contact our office. Mr. Powers is a Board Certified family law specialist.