Podcast: How Spousal Support/Alimony Works

The US has treated spousal support as taxable income to the recipient and tax-deductible for the payor for the last 75 years. However, the new Tax Cuts and Jobs Act scraps this deduction for anyone who signs a separation agreement or gets divorced after 2018.

By Diana Shepherd, CDFA®
December 27, 2017
How Spousal Support Works

No two divorcing couples have identical circumstances, but one potential source of income (or expense) for many divorcing people will be spousal support – sometimes known as alimony or maintenance. The standard is to give support to the spouse who needs it in order to keep the family on an equal setting – however, there is an underlying duty for each spouse to work towards being independent of each other.

Sometimes known as alimony, spousal support has been treated as taxable income to the recipient and tax-deductible for the payor in the United States for the last 75 years; it is still treated this way in Canada. However, the Tax Cuts and Jobs Act (which US Congress passed on Dec. 20) scraps this deduction for anyone who signs a separation agreement or gets divorced after December 31, 2018.

Until the new tax reform bill takes effect, to get a clear picture of what you'll be receiving or paying, you'll need to factor in the taxes/tax deductions for the spousal support. If you're the payor, you need to know what the actual out-of-pocket cost (the amount less tax deductions) will be to you; if you're the recipient, you need to figure out what the net amount (the gross amount less taxes) that you’ll be receiving.

 

Diana Shepherd (CDFA®) is the Editorial Director and Co-Founder of Divorce Magazine. An award-winning editor and published author, she is a nationally-recognized expert on divorce, remarriage, finance, and stepfamily issues.

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By Diana Shepherd, CDFA®| December 27, 2017

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