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Requirements for deducting alimony payments on taxes

On Behalf of | Jun 22, 2017 | Spousal Support

When two people in Michigan separate or get a divorce, one might owe alimony to the other. While alimony is usually tax-deductible, there are several conditions that must be in place for a person to claim that deduction. The parties must live separately, and the separation or divorce agreement must not specify that the payment cannot be taxed or deducted. The arrangement must end on the death of the person receiving the payments. Finally, the alimony must be part of the separation or divorce agreement.

This final point prevented one man from claiming a deduction on part of a sizable bonus that he paid to his ex-wife. The man received it the year before the divorce, and they signed an agreement about how it would be divided. However, the spousal support order only dealt with the monthly payments he would make to his ex-wife and a percentage he would owe if his income went above a certain level.

When the man claimed the deduction, the IRS challenged that portion of it. The Tax Court ruled that since the court order made no mention of the bonus, it could not be considered alimony for purposes of tax deduction.

A person who is concerned about paying or receiving alimony may want to talk to a lawyer about the situation. An attorney may be able to explain the likelihood that alimony will be required. For example, there may not be alimony payments if both people make similar salaries. Furthermore, even if a person is required to pay alimony, it may be temporary. The spousal support might only be paid while a person returns to school or gets training for a new position.