Paid Alimony Taxes Yet? The Truth About Tennessee Divorce

Have you paid your alimony taxes yet? The Germantown, Tennessee, divorce isn’t the only kind that requires careful calculations. When tax time rolls around, the Internal Revenue Service (IRS) has a keen interest in all awards of spousal support. This is what every spouse and former spouse should know about the routine taxation of alimony.

1. When Is Alimony Taxable as Income to the Recipient?

Although it may seem like tithing to the federal government, the taxation of alimony is more about shifting the burden of paying income tax from one spouse to the other.

When a spouse is ordered by the court to pay alimony upon separation, the obligor-spouse enjoys a very important benefit: he will not be required to pay income taxes on the money paid to the other party. The payor-spouse subtracts from his gross income all amounts paid in alimony under a divorce or separation instrument for the tax reporting year. The recipient-spouse adds the same amount into her gross income for that tax year. So you know, that the money was paid or received as alimony is indicated on both tax returns.

2. Was the Money Paid Under a Divorce or Separation Instrument?

Not just any support arrangement is considered by the IRS to be a “divorce or separation instrument” for income tax purposes. Take, for example, the husband who leaves the marital home prior to filing for divorce and sends money to his wife so she can get along while seeking employment. Husband is not yet under any court order or decree to support his wife, but does so voluntarily. Because the money he paid to her was not part of any enforceable divorce or separation agreement, he is still on the hook for the income taxes.

For the income tax liability to shift to the recipient-spouse (her), the support must be authorized by the court as part of a divorce or legal separation proceeding. An informal agreement between spouses to provide voluntary support is insufficient to shift the tax burden.

3. What About Temporary Alimony?

There is nothing unusual about an award of temporary spousal support while the Tennessee divorce is ongoing. Whether the amount to be paid was ordered as a stop-gap in the form of alimony pendente lite during pendency of the case or is part of the final decree, it is still legitimized by the court’s authority and sufficient to shift the income tax burden to the recipient-spouse.

4. Is It Really Spousal Support?

Sometimes it is not clear whether the court’s decree was an alimony award or a marital property allocation. The instrument’s title, although frequently helpful, is not determinative. In those situations, we have to look at the substance of the court’s decision to determine whether it was truly spousal support or something else. We need to answer the question: “What was the purpose of the court’s order or decree?”

In our next post on this topic, we will continue to share more about what is deductible from income as alimony and what is not.

How Important Is Tennessee Alimony to Your Divorce?

The tax consequences of paying or receiving alimony can have a significant impact on your income tax liability for any given year. You should always seek tax advice from a Certified Public Accountant or tax attorney. For a list, see our Memphis Tennessee Divorce CPA and Tax Professionals Directory or call Miles Mason, Sr., for a referral. This article provides an overview only and exceptions may apply to your particular situation. For more detailed information, See IRS Publication 504 Divorced or Separated Individuals at IRS.gov.

To learn more about paying alimony taxes, read Divorce and Taxes | Tennessee Divorce Law and Tax Resources. Also, for legal updates, news, analysis, and commentary, see our Tennessee Family Law Blog and its Alimony category.

Memphis divorce attorney Miles Mason, Sr., practices family law exclusively and is founder of the Miles Mason Family Law Group, PLC. To schedule your confidential consultation, call us today at (901) 683-1850. If you are contemplating divorce, check out The Tennessee Divorce Client’s Handbook: What Every Divorcing Spouse Needs to Know, now available on Amazon and Kindle.