Terms of an alimony agreement can have tax impacts

On Behalf of | Jan 30, 2015 | Divorce

Sometimes, divorcing parties set up an alimony arrangement through a written divorce settlement agreement. The terms of such an agreement can be incredibly impactful. Not only can the specifics of the agreement affect what alimony obligations are in place, they can also have tax implications.

When a person takes on an alimony obligation through a written agreement, they might be able to take a federal tax deduction for the alimony payments they make. In order for a given payment to be tax deductible as alimony, it needs to meet several requirements. A list of these requirements can be seen on the Internal Revenue Service’s website.

Given some of these requirements, what exact terms an alimony agreement has can have impacts on whether a payment under the agreement qualifies for a tax deduction.

For one, the requirements make it so payments that are specifically referred to in an agreement as not alimony or are treated as a property settlement or child support are not considered alimony payments when it comes to federal taxes. Thus, what an alimony agreement calls certain payments can matter quite a bit tax-wise.

Also, payments don’t qualify to be deductible as alimony if a person’s liability to make the payments will continue past the death of their former spouse. Thus, what terms an alimony agreement has regarding how long a person has the obligation to make a certain class of payments can have tax deductibility impacts.

As this illustrates, what an alimony agreement specifically says can matter considerably. Thus, it can be important to take great care when it comes to developing the terms of an alimony agreement. Divorce attorneys can assist with the negotiating and drafting of settlement agreements in a divorce.