Unallocated Alimony and Child Support Can Be All Taxable/Deductible Alimony

Simply put, alimony is money paid by one spouse to the other after a divorce or separation. This money is taxable for the person receiving it and tax-deductible for the person paying it. However, child support is not taxable or deductible. If the alimony and child support are combined into one payment, it can still be taxable and deductible as long as it meets certain requirements. This can help both spouses save on taxes. Unallocated family support is a way for divorced or separated parents to plan their finances. It can help the higher-earning parent get a bigger tax deduction, which means more money for the receiving parent. The courts in Florida have approved this type of support in some cases, as long as both parents understand the tax implications. So, it’s a way to help families transition after a divorce or separation. In a court case, the judge approved temporary alimony and child support for one party. The law says child support must be determined by the divorce or separation agreement. If the agreement says the support ends if the recipient dies, then it does. But in Florida, it’s not clear if unallocated alimony and child support end if the recipient dies. The court rulings in several divorce cases in California and Colorado stated that family support payments did not qualify as taxable/deductible alimony because the ex-husbands failed to prove that the payments would cease upon the death of the ex-wives. The courts noted that California and Colorado law did not clearly allow for the cessation of support upon the death of the recipient spouse. Therefore, the payments were not considered alimony for tax purposes. In the case Gonzales v. Commissioner, the Tax Court ruled that a husband could not deduct alimony payments to his wife, because under New Jersey law, he might still have to pay support if his wife died before the divorce was final. This decision was based on similar rulings in other cases, including Miller v. Commissioner. In another case, Gilbert v. Commissioner, the Tax Court again ruled that unallocated support payments were not alimony, because they could continue even after the death of the recipient. The law is not always clear on whether family support payments continue after a divorce is called off. In some cases, unallocated alimony and child support are considered taxable/deductible, but it depends on state law. For example, in California and New Jersey, the payments would cease if the recipient died. Different courts have made different rulings on these issues, and some have criticized certain decisions for not taking into account the overall purpose of the law. The Tax Court in Berry v. Commissioner looked at a bunch of cases about whether a person has to keep paying alimony and child support if the person getting the money dies. They found that the rules are confusing and different in different places. So, to be safe for taxes: 1) If you want the payments to be taxed and deductible, make sure the obligation to pay stops when the person getting the money dies. Put that in the agreement. 2) Don’t make a backup plan for payments. 3) Say what you want the tax consequences to be and what happens if things don’t go as planned. Melvyn B. Frumkes is a lawyer who specializes in complicated divorce and custody cases. He has written a book about divorce taxation and works at a law firm in Miami and Boca Raton. This column is on behalf of the Family Law Section.

Source: https://www.floridabar.org/the-florida-bar-journal/unallocated-alimony-and-child-support-can-be-all-taxable-deductible-alimony/