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

Property division is important for Pennsylvania residents

Pennsylvania residents who are going through a divorce have several options for dividing property. One of the challenges that faces many couples during the process is how to buy out the former spouse without the burden of a mortgage. Changes that take place before the legal separation or finalized divorce often cause unanticipated problems. For example, if one spouse were to buy property before the divorce decree is issued, the other spouse may have to sign a quitclaim deed formally releasing any claims to the property.

One common problem occurs when a couple is officially divorced, but one spouse lacks the funds to buy out the other. When a spouse is unable to receive a payoff, they are still legally responsible for their share of the mortgage. Many people in this situation are concerned about the impact on their credit score if their former spouse does not pay the mortgage on time. These types of concerns are a leading reason for home sales or spouses being paid off after the end of a marriage.

It is common for one party to continue living in the home even though the other vacates the property. The separation agreement and the final divorce decree help determine how property division occurs. Many couples who divorce on amicable terms are able to reach an agreement that works well for both parties and is approved by the court.

Asset distribution may be one of the most contested issues when a marriage fails. Legal representation may be an advisable choice when the parties have difficulty reaching an agreement. Because Pennsylvania courts follow the principle of equitable distribution, it may be important for each party to have separate legal representation.

Source: Credit.com, “How to Divide Your House in a Divorce“, Scott Sheldon, October 31, 2014

Examining the divorce asset distribution rules in Pennsylvania

Pennsylvania couples who are thinking about divorce may be interested in how asset division works in the state. Understanding these principles can help a spouse to prepare for the end of a marriage, in order to protect their rights to property during the process.

In Pennsylvania, property is generally divided into marital and separate property categories. In general, separate property is any property obtained before the marriage or after the separation, any gifts or inheritance given to only one spouse and any personal injury damages awarded to a spouse separately. Everything else is considered marital property. In some cases, however, separate property can be considered marital property, depending on how it is used during the marriage. When the separate property is commingled with the rest of the marital assets, it may be considered marital property. If the separate property is used to purchase jointly-owned assets, like a home, this may also make it marital property.

Marital property is subject to equitable distribution during a divorce. This doesn’t necessarily mean that there will be an equal division of the marital assets, but simply that they will be divided in a way that a court sees as fair to the parties. A court will look at various financial and other factors in making this determination.

Rather than leaving this property division decision up to a judge, couples may be able to negotiate their own divorce settlement agreement that would cover this issue. If many of the divorce legal issues are not contentious, a couple may be able to save time and money by using mediation or collaborative divorce to govern their separation. An attorney with experience in family law may be able to assist a client in going through the process.

Source: Forbes, “Divorcing Women: Here’s How to Protect Your Inheritances And Gifts“, Jeff Landers, August 19, 2014

Source: Forbes, “Divorcing Women: Here’s How to Protect Your Inheritances And Gifts“, Jeff Landers, August 19, 2014

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