When Ohio couples are preparing to divorce, they should understand that alimony is deductible by the person who pays it and taxable to the person who receives it. If alimony is likely to be owed by one spouse to another, keeping the tax implications in mind during the negotiation process is important.
It is equally important to understand what cannot be deducted as alimony. Amounts that are paid for child support are never deductible by the payer and are similarly not taxable to the payee. It is important to clearly list the monthly portion that is alimony and the monthly portion that is child support in any agreement or property settlement.
To be deductible, IRS regulations state that the alimony must be in the form of cash or another cash equivalent and the payments must be made pursuant to a divorce settlement or agreement. They also cannot be listed as being nondeductible in the divorce documents. Finally, alimony payments cannot extend beyond when one spouse passes away. In a recent Colorado decision, the court found that court-ordered alimony payments were not deductible for one man. The alimony was triggered when the man fell into default on his child support payments. Since they were entered as a judgment that would survive the death of either spouse, he could not deduct his alimony.
When people are going through a divorce and alimony is likely to be ordered, it is important that they keep the tax implications in mind. They may want to seek the help of a family law attorney to help with negotiating any agreement and then with drafting the documents with language that clearly defines the payment amount and tax responsibilities of each party.