Although many people might not know exactly what to expect when deciding to file for divorce, it will certainly provide lifestyle adjustments. Of course, couples can work together to ease that transition for themselves and any children involved in the split.
Some people may consider requesting alimony payments as part of a financial settlement. Spousal support in this form isn't a mandatory aspect of divorce, but it can help ease some financial difficulties created by divorce. For example, one spouse may have a much higher income than the other. During marriage, both individuals become accustomed to the lifestyle associated with sharing income, so alimony payments can help balance out changes caused by living with a single income.
Of course, before drawing any conclusions about a divorce settlement, it can be helpful to be aware of the ramifications for specific decisions. When couples reach an alimony agreement, for example, they may want to understand the associated tax liabilities or deductions.
On a very broad level, ex-spouses who pay alimony can claim payments as a tax deduction, and spouses receiving payments should claim them as taxable income. In order for this to hold true, certain conditions must be met.
Tax breaks will only be given for payments that are clearly designated as alimony in the divorce. It's important to make the distinction because child support isn't considered tax deductible. At the same time, the spouse receiving alimony must claim it as taxable income in order for the paying spouse to see the tax benefit on his or her end.
Sorting through the details of family and tax law can be overwhelming. Speaking with a family law professional can help clear up any questions or misconceptions about the effects of including alimony in a divorce settlement.
Source: MarketWatch, "There is one tax break for divorcees," Bill Bischoff, Dec. 16, 2013