Now that tax time is approaching, we thought it would be a good idea to refresh your memory with some common tax issues associated with divorce and separation. Whenever you have specific questions about your personal tax liability — about what forms you should file, what you must report, whether you should file for an extension, or which deductions you should claim against your income — then you should speak with your Certified Public Accountant (CPA) or tax preparer before relying on general information alone. Spousal Maintenance Issues. Make sure that the spousal maintenance tax obligation shifts to the recipient of the money. The supporting spouse may deduct the money paid for spousal maintenance, or alimony. The spouse or former spouse receiving the alimony must include it as income on his or her tax return. To be considered "alimony" for Federal tax deduction purposes, according to the Internal Revenue Service (IRS) the following conditions must exist: 1. You do not file a joint tax return with the other spouse. 2. The spousal support was paid in cash (or by check or money order). 3. The supported spouse receives the payments, or someone on his or her behalf receives the payments. 4. The divorce decree doesn't identify the support as something other than spousal maintenance, or alimony. (For example, "Decree: … a gift to my spouse of $50,000 paid over 5 years…" would not likely qualify for the alimony deduction.) 5. If legally separated by judicial decree, then the payments must have been made while living apart, and not while sharing the same household, to be considered deductible spousal support. 6. Any payment made was not treated as a property settlement. For example, if your divorce decree stated that the marital home is allocated to one spouse in lieu of spousal maintenance, then that may be a property settlement and not deductible spousal support. 7. Any support payment made was not treated as child support. Bottom Line. If you made a non-cash property settlement in payments or as a lump sum for the benefit of the other party, then that is not deductible spousal support for Federal income tax purposes. Any voluntary payments made, meaning payments that were not ordered in the decree of dissolution, are not deductible as alimony from income either. In the future, if you plan to over-pay regularly and continuously to financially assist your spouse or ex-spouse, you could seek a court-ordered modification of the spousal support order to increase the amount you are legally obligated to pay. No Deduction for Child Support. Child support payments are never deductible. If you are paying child support and spousal maintenance, and you didn't satisfy your total obligation, then the IRS requires that you account for the child support first (which is not deductible) before you account for the spousal maintenance paid (which is deductible). Here's a simple example: Let's say that you were ordered to pay $10,000 in spousal maintenance, and another $12,000 in child support in 2010. But because of a job loss, you actually paid $10,000 in spousal maintenance, but only $6,000 in child support. You could only deduct $4,000 from your income for the alimony paid in 2010. Name Changes. After a divorce, many people choose to change their names back to what it was before the marriage. If you changed your name, too, then you need to make sure that your legal name matches the name registered with the Social Security Administration (SSA). You need your current legal name recorded with your Social Security Number (SSN). Notify the SSA of your new legal name to assure, among other things, that any entitlements associated with your married name are recorded under your new name. You won't get a new SSN, but the SSA will issue you a new social security card with your existing SSN and new legal name. Use the Application for a Social Security Card (Form SS-5) to change information on your social security record to reflect your current legal name. At the Law Offices of Scott David Stewart, we are always here to answer your questions and provide you with the legal advice you can rely on. We invite you to contact our office today to learn more about how our team of family law attorneys can help you. Resources: Internal Revenue Service http://www.irs.gov/ Social Security Administration http://www.ssa.gov/
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