The Tax Consequences of a Divorce: Alimony

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It’s said that there are only two things that are certain—death and taxes. When it comes to a divorce, the taxes part of that saying is true as well. Almost all aspects of a divorce—the property settlement, child support, and spousal support—can have implications for you come April 15.¹

I’ll address alimony first. The Internal Revenue Code (IRC) defines alimony as a cash payment received by or on behalf of a spouse under a divorce or separation agreement which is not designated as non-alimony and is not child support, paid when the parties are not members of the same household, and for which the obligation to pay does not survive the payor’s death. Whew! So, from that mouthful, what have we learned? I’ll go into slightly greater detail on each requirement:

Paid by cash or check. Transferring property will not count as alimony.
Received by or on behalf of a spouse. Required payments to a third party, such as medical expenses or mortgage payments may qualify as alimony.
Pursuant to a divorce or separation agreement. Any “extra” payments above the amount required by the divorce decree will not count as alimony.
Not designated as non-alimony. The IRC allows what would otherwise be considered alimony to be treated as non-alimony by including a provision to that effect in a divorce decree or settlement agreement. (Incidentally, you cannot transform non-alimony into alimony by agreement).
Not for the support of a child. If payments are modified or terminated upon child-related events, such as the attainment of a certain age, than the payment will be considered child support and not alimony.
Not survive the payor’s death. Any payment that would survive the death of the paying spouse would not be alimony. So, any life insurance benefits that may be received upon the death of a dying spouse would not count as alimony.² (Some forms of alimony, as described below, under Mississippi law, as described below, do not meet this criteria).

Traditional alimony, that which is paid every month, fits the IRC’s definition of alimony. On the other hand, lump sum alimony does not, mainly because the obligation to pay lump sum alimony can survive the death of the paying spouse.

Generally, alimony is considered income to the receiving spouse. This means the paying spouse can deduct the alimony payments on his or her taxes.

In later posts, I’ll discuss how child support and property transfers may affect your taxes.

I am not a tax attorney. I do not play one on TV. While you shouldn’t take anything on this blog as legal advice, you really shouldn’t consider this tax advice!↩
Life insurance benefits are usually not considered income by the IRS, but that’s a topic for a tax or life insurance blog.↩