"Are alimony and child support taxable? If so, is there any way of structuring support payments to my ex-spouse to lower my taxes?"

Alimony is taxable. Child support is not. In most matrimonial cases involving minor children and when the spouses earn unequal income, both alimony and child support are likely to be ordered. While child support, in many cases, is prescribed by state-mandated guidelines, alimony is not. Alimony is typically a negotiable issue. If the payor spouse is in a significantly higher tax bracket than the receiving spouse, the alimony portion of any support payment will be of significant benefit to the payor spouse and the recipient spouse, as the recipient spouse would be taxed at a much lower rate.

Furthermore, dependency exemptions may be phased out to the payor spouse, and the recipient spouse might be able to use these exemptions for additional tax savings, if both agree to this. As part of the negotiation process, if the payor spouse wants the support to be tax-deductible, the payor spouse may have to pay a little more to the recipient spouse to cover some of the tax implications to the recipient spouse; however, the taxing authorities bear much of the additional costs, and both parties can actually have more cash flow after a carefully structured support agreement is reached.

Laurence G. Thoma, CPA, is an accountant, lawyer, and certified fraud examiner practicing at Withum Smith and Brown in Red Bank, NJ. In his 34-year career, he has served as an instructor at the American Academy of Matrimonial Lawyers and the New Jersey Judicial College. The firm's New York office can be reached at (212) 465-1040. View its Divorce Magazine profile.
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