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:
- 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.*
- The payments are periodic (i.e monthly or weekly) as opposed to a single lump sum payment,
- The payments are specified in and made in accordance to a written separation agreement,
- 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.