The vast majority of participants in family law cases do not realize the tax implications of spousal support payments. In general, on a separate tax return, spousal support paid to an individual is taxable income by the person receiving it. Therefore, a person who has no other income may have to pay a large tax amount on payments that they receive from a former spouse as support. The inverse of this is also true. Spousal support paid to another individual is tax deductible by the payor.
Very often this fact is ignored by family law attorneys and never explained to their clients. The implications are that the party receiving the support actually ends up receiving much less than they originally thought, and the party paying the support actually ends up pays much less. One tactic to level the playing field which is used by savvy family law attorneys in a negotiation setting is to contract around this obligation. In a contract setting these tax implications can be neutralized by mutual agreement. The lawyers at Bush & Taylor know the nuances of the spousal support law and the tax implications for their clients. We use that knowledge to our clients’ advantage daily.
See what the IRS and Virginia Code say about taxes and spousal support:
- https://www.irs.gov/taxtopics/tc452.html
- http://law.lis.virginia.gov/vacode/title20/chapter6/section20-107.1/
- http://law.lis.virginia.gov/vacode/title20/chapter6/section20-109.1/
*Please seek tax advice from a licensed tax professional to determine your own specific tax situation. The comments here regarding taxes are only a generality and are not meant to be tax advice. Specific situations may vary greatly.