Divorce Maintenance Strategies

by Elizabeth Rayne
Spousal maintenance may have tax implications for both spouses.

Spousal maintenance may have tax implications for both spouses.

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The fear of losing the financial lifestyle enjoyed during marriage can be one of the most stressful parts of a divorce. Divorce maintenance is meant to guard against this hazard, and states have different ways of tailoring support payments to suit a particular situation and making it equitable to both parties. This can include a lump sum payment, monthly payments over a specific period of time, or offsetting support with increased marital property.

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Spousal Maintenance Overview

Following a divorce, one spouse may be awarded spousal maintenance, also known as alimony or spousal support. Alimony is not automatic in every divorce case and is generally only awarded when one spouse is financially better off than the other spouse. The law of the state where the couple will divorce specifies the factors a court will consider when determining whether one spouse will pay spousal support to the other, the amount of support and its duration - tailored to the specific facts of the case.

Tax Implications

Generally, the person who pays alimony may deduct the payments from his income for tax purposes, while the person who receives alimony must pay income tax on alimony received. However, before filing taxes, both spouses must ascertain that the payments are considered alimony and not child support, which is not taxable income. Further, the couple may establish a different type of payment arrangement to avoid tax liability for the recipient. The IRS only taxes spousal support that is paid in cash, including checks and money orders. However, payments made in other property, such as a car, are not considered taxable alimony. Additionally, if the payments are only used to maintain property, they may not be considered alimony.

Types of Maintenance

Depending on the laws of your state, the court may award either lump sum or monthly payments. When the court determines that spousal support is only needed to help a party "bridge the gap" from marriage to single life, it may order one lump sum payment, or a few payments. Receiving a lump sum payment may be quite beneficial for a spouse because she may use it to pay for education, a down payment on a new home, or other investments to help her start her new future. Conversely, some spouses may find monthly payments more beneficial, as it allows the spouse to spread tax liability out over a longer period of time. Furthermore, it may be easier to get by with a reliable and steady source of income. Accepting monthly payments may also allow a spouse to negotiate a larger alimony settlement.

Maintenance Alternatives

In determining the divorce arrangement, the court may balance out lower spousal maintenance payments with other awards. For example, the court may allow one party to live in the marital home until a specific date or award one spouse more property in exchange for receiving a lower alimony payment. Furthermore, spousal maintenance may be limited to rehabilitative maintenance, which allows the spouse to pay for education or other job training. The court also has discretion to allocate marital debts to each party, including credit card debt and mortgage payments.