Divorce And Spousal Support

by Tax Guy - Burlington Accountant on November 5, 2009 Print This Post Print This Post

If you are in the process of divorce and will have to pay spousal support, make sure you structure the payments properly to make sure the payments are tax deductible.

When Is Support Deductible?

Spousal support payments will be deductible if they meet all of the following conditions:

  1. You and your spouse have been living separate and apart for more than 90 days due to a breakdown of your relationship. In addition, the payments must have been made in the current or preceding year.*
  2. The payments are periodic (i.e monthly or weekly) as opposed to a single lump sum payment,
  3. The payments are specified in and made in accordance to a written separation agreement,
  4. The payments are an allowance and can be used for any purpose whatever.

* Note: If you do not have a separation agreement or court order after two years, all or a portion of your support payments made may not be deductible.

Direct Payment of Expenses

In certain circumstances payments to a third party may be deductible provided they are under the separation agreement and a re periodic. An experienced attorney can advise you of the exact conditions and circumstances these payments may be deductible.

Taxed To The Spouse

Support payments made to your spouse are taxed in their hands. Effectively you are making spousal support payments with pre-tax dollars and income splitting. Note, you cannot elect out of these provision but you may, if you so desire, structure the payments so that they do not meet the deductibility rules.

Specify The Child Support

Child support is not deductible nor is it taxable to the spouse. If you are required to pay child support and spousal support ensure the amount of the child support is specifically indicated in the agreement or court order.

If the separation agreement or court order does not specify the amount of spousal support, then the payments will be considered child support.

Get Paid Advice

Divorce is a legal process that may income tax implications. It is always advisable to obtain the paid opinion of a professional to ensure you have structured things properly.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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