A look at how the IRS views alimony payments after divorce

Pennsylvania residents who are interested in family law issues may wish to know more about how the IRS treats alimony payments. Depending on the circumstances, some payments to a former spouse may not count as alimony.

Alimony is defined by the IRS as money that is paid to a spouse or former spouse as part of a court order or other divorce agreement. The payments must be made in cash, by check or by money order. In addition, the sender and recipient of the payments cannot be jointly filing a tax return. If the payments are voluntary, they do not count as alimony, and the alimony tax rules do not apply. Additionally, other types of payments, including child support, community property income and upkeep on a person’s property, do not qualify.

The person who is paying the alimony is allowed to deduct those payments from their taxable income. There is a space for these payments on each 1040 tax form. The former spouse receiving the alimony must add those payments to their taxable income. However, if these payments decrease significantly during the first three years, this may require the person paying alimony to add them back into their income and pay taxes on them. This is known as “recapture.” The recipient may be able to deduct some of the income that has been recaptured.

Understanding all of the financial issues that accompany a complicated divorce can be difficult without the guidance of an attorney. An attorney may be able to walk a person through these issues and prepare them for the end of a marriage. The attorney may also be helpful in representing the person’s interests and working together with the former spouse to minimize the time and emotional toll through a collaborative divorce.

Source: Internal Revenue Service, “Alimony,” Accessed April 7, 2015

An overview of spousal support factors in Pennsylvania

If a Pennsylvania couple can agree on a settlement when their marriage ends, the court will not need to get involved. However, if the parties are unable to do so, the Court of Common Pleas will use a set of factors to determine whether one spouse should pay the other alimony and if so how that will fit into the overall decree.

Spousal support is unlikely to be awarded unless a party needs financial assistance to pay bills and maintain a standard of living. It might be ordered on a temporary basis until the recipient becomes financially independent. Both the spouse’s current income and earning potential are examined by the court. This could include work experience, job skills and education. Whether a party needs time to get more training and money to support this endeavor will be considered. Spouses asking for alimony might not be eligible for support if they are able to support themselves through reasonable employment.

Any potential inheritances will be factored in along with assets and liabilities as they will affect a person’s overall financial well-being. Both what the couple owned while married and separate property from before the marriage could influence the court’s decision. The spouses’ respective health and age are considered as well as how long a marriage lasted and whether there was any marital misconduct. Also taken into account is what a spouse might have contributed to the other’s ability to have a career, such as time spent as a homemaker. Efforts required to care for minor children following a divorce are taken into account as well.

Spouses might find a quicker resolution by working together outside of court to reach an accord on these matters. An attorney who has experience in divorce law can assist a client in the negotiation of a comprehensive settlement agreement.

Source: Divorce Support, “Pennsylvania Spousal Support/Maintenance/Alimony Factors“, September 23, 2014

Can you get out of a mortgage or lien through divorce?

Not all people are great at staying out of debt. Sometimes it’s because of hardship like a job loss or serious illness, but other times it’s simply due to lack of discipline. What happens, however, if your spouse has failed to stay on top of his or her payments and has fallen into debt? One woman found herself in this situation after her husband fell behind on alimony and child support payments to his ex-wife. Their bank placed a lien on their home, but the woman was hoping to have it lifted because she and her husband got divorced.

Unfortunately, liens and mortgages do not follow the person who caused the debt. Rather, they are attached to the specific property, regardless of who is named on the title. Fortunately, there may be a solution to a problem like this.

 

If a lien was placed on a home because of past-due child support, it may be wise to contact your local child support enforcement agency. There may be other ways to satisfy the debt, including wage garnishment or even pursuing criminal charges that could result in faster collections. Once the debt is paid, the lien would be lifted.

Selling the home may also be a good option if the owner is willing to consider it. In some cases, profits from a home sale can satisfy a lien. However, if a sale would not result in enough money to pay the lien, it may not be possible to sell the home at all.

Although divorce can answer some problems, it may not be able to address everything. To determine the best way to handle a situation like this or any other complicated situation, it is often a good idea to work with an experienced attorney.

Source: Fox Business, “Will Divorce Release You From Home Lien?” Steve Bucci, Jan. 10, 2014

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