As women rise in the workforce, become successful entrepreneurs, and begin to outpace their husbands in earnings, more and more are finding themselves having to make alimony payments. If you have been the main breadwinner during your marriage, you may find yourself in the same position. When you begin the divorce process, your spouse may demand alimony as part of the settlement. Or, if you find yourself in a Colorado divorce court, the judge may require that you make alimony payments.
While the thought of paying your soon-to-be-ex-husband alimony may leave a bad taste in your mouth, there is one major benefit to the arrangement. While your ex has to claim the alimony as taxable income on his tax return, you may be able to deduct those payments and lower your federal income tax liability.
If you are paying alimony, or spousal support, to your ex, there are certain requirements you must meet in order to deduct those payments on your tax return. First, you and your husband must file separate returns. Second, you must make those payments in cash or by check or money order. Third, the two of you must reside in separate homes. Also, you must be free of the liability if your ex passes away. And, since child support is never deductible, any alimony payments you make cannot be treated as child support.
Lump sum and property settlements
If you and your spouse agree on a lump sum cash payment or property settlement, this does not count as alimony or spousal support. Even if you agree to installment payments, it is not alimony. In general, alimony is a percentage of your income that you pay to your spouse until he is able to be reasonably self-sufficient. These payments are often in addition to any agreed upon settlement that includes your Denver area marital property.
Reporting alimony payments
When it comes time for your accountant to prepare your tax return, be sure to provide the total amount you paid in alimony for the entire tax year. The alimony payments you made appear as a separate deduction from any itemized deductions you may claim. This means that if you choose not to itemize, you can still claim the alimony expense. In order to claim the deduction, you will have to list your ex-husband's social security number as the recipient on your tax return.
If you are considering divorce, it is important to consider the financial and tax consequences of a property settlement and possible spousal support. The more you know about these things before you find yourself at the negotiating table or in court, the better prepared you will be to make the right decisions to protect your interests.