There are often several tax implications for ex-spouses after a divorce, whether it be from selling property, cashing in pension or stocks or even from paying or receiving alimony. That’s right — there are tax implications for both spouses when alimony payments are made.
According to the Internal Revenue Service, when the following conditions are met, the payments are considered alimony:
— The spouses don’t file a joint tax return
— The alimony payments were paid by cash, check or money order
— The receiving spouse received the payment
— The divorce decree doesn’t say that such a payment isn’t alimony
— In the case of a legal separation, the two must not be living in the same household
— There is no requirement that the payment must be made if the receiving spouse dies.
— The alimony payment is not treated as a property settlement or as child support.
When such a payment is considered alimony by the IRS, then the receiving spouse must declare the total amount as income. The paying spouse can deduct the total amount. The paying spouse doesn’t have to itemize to claim this deduction.
Because there can be other tax implications after a divorce, it’s often helpful to consult with a financial advisor and your divorce attorney to make sure that you are not creating a problem that the IRS will need to investigate through an audit. You want to make sure that your finances remain intact and that your financial future is secure. Your attorney can help by providing additional information.