Handled properly, alimony is a flexible financial tool for divorcing couples with tax advantages that can help put more cash in the pockets of both spouses.
Alimony, which is also sometimes called spousal support, provides living expenses to the lower-income spouse above the money sometimes provided by child support.
Alimony and child support are different. An order of alimony is very much in the discretion of the judge; child support is a simple mathematical calculation using guidelines published by the state.
In deciding alimony, the court considers the spouses’ relative ability to earn money, both now and in the future; their respective age and health; the length of the marriage; the kind of property involved; and the conduct of the parties. In general, courts award alimony in most states when one spouse has been economically dependent on the other spouse for most of a lengthy marriage.
Alimony, however, can be advantageous when one spouse has a very high income and the other a lower income because the I.R.S. treats alimony differently from child support. Alimony is tax deductible to the person payor, and taxable income to the recipient; child support, by contrast, is not taxable to the person who receives it and not tax deductible to the person who pays it.
When spouses have dramatically different incomes, there may be some tax advantages to using alimony, even if a judge wouldn’t ordinarily award it. For example, consider John and Jane. John’s income of $175,000 made every deduction precious to him; Jane had a substantially lower tax rate because she earned but $23,000 as a teacher. After looking at the numbers they realized that John could claim the support he paid as alimony, he could afford to pay Rhonda more than enough to compensate her for the extra tax she would have to pay and still come out ahead.