Everything Wives Should Know About Alimony
No matter how hard we may try, we often find ourselves facing the reality that there is no one size fits all for successful marriages. Currently in America, about 40% to 50% of marriages end in divorce. With divorce comes plenty of paperwork, emotional hardship, and financial discord. If your spouse was the breadwinner of the family who out-earned your income by a substantial margin, it is highly likely that they will be responsible for alimony payments. Unlike child support payments or property settlements, alimonies need to follow certain tax regulations. If a recent divorce has left you flustered and confused, let us walk you through what to expect in regards to court-ordered alimony.
What is Alimony?
Better known as spousal support, alimony is the financial maintenance piece to the American divorce process. If your husband earns substantially more money than your current income, it is likely he will have to pay alimony. Alimony totals are either decided on an agreement between you and your spouse, or by a court order. Intended to bridge any unfair economic gaps between spouses, alimony has been a part of the divorce system for over 100 years. In the case that you decided to sacrifice a career to begin a family and need time to recover your career, spousal support comes in handy to assure that you’ll stay afloat through hard times.
How are alimony amounts determined?
There are many factors to be considered before a set alimony amount is served to the payor. The Uniform Marriage and Divorce Act mandates that many states consider the following before making a final decision about alimony payment amounts:
- Age and physical condition
- Financial condition of both former spouses
- The couple’s standard of living pre-divorce
- Length of marriage
- Length of time needed for recipient to become financially self-sufficient.
Typically alimonies are not awarded to wives of short marriages. As with many facets to settling a divorce, alimony amounts can be sorted out by you and your spouse or a divorce lawyer, but if an agreement cannot be reached, the two of you have the option of leaving it up to the court.
How long can you receive alimony?
Depending on a number of circumstances, alimony payments can either be temporary or permanent. Generally, the length of the marriage is one of the most important facets of determining how long a payor must pay alimony. Permanent alimonies are typically awarded to longer marriages while shorter pay schedules are typically awarded to shorter marriages. Temporary alimony durations as mandated by courts also vary from state to state. Be sure to brush up on your state’s spousal support laws to best prepare for life after divorce.
What qualifies a payment as alimony?
Through the eyes of the IRS, only certain non-court ordered payments can be considered genuine alimony. A payment is considered alimony only if it meets the following qualifications:
- The payment is not used as child support
- The payment is not used as property settlement
- The payment is made out to a spouse under a divorce or separation instrument
- The divorce or separation instrument has not designated the payment as not alimony
- The payment is either cash, check, or money order
- The spouses file separate tax returns
- The spouses no longer live together
How is alimony taxed?
Despite popular belief, alimony is not tax-exempt. Both the payor and the recipient must abide by federal tax regulations to keep on the IRS’ good side. Wondering “Is alimony taxable?” The IRS has your answer. Under the Tax Topic Number 452 it is states that “Amounts paid to a spouse or a former spouse under a divorce or separation instrument may be alimony for federal tax purposes. Alimony is deductible by the payer spouse, and the recipient spouse must include it in income.” In layman’s terms, the recipient must count alimony as income, thereby being taxable by standard income tax rates.
How to report alimony?
Recipients of alimony payments are to claim the amounts received as income. You are only allowed to report alimony received on Form 1040 or on Schedule NEC. Failure to report alimony could result in an unfriendly audit by the IRS. When filing, be sure to provide your Social Security number or your Individual Taxpayer Identification Number to the former spouse providing support. Failure to do so could result in a $50 penalty.