As personal an event as divorce is, it is not something anyone goes through alone. At the very least, the hand of the government weighs in and will seek to be sure that tax obligations continue to be met one way or another.
The scope of tax implications stemming from divorce can be complicated, but ignorance or confusion about compliance are not defenses if the IRS or Ohio tax authorities raise questions. Alimony payments or spousal support, as it is now referred to, can be the source of some of the greatest confusion. This is because the IRS makes distinctions about what constitutes alimony and what does not.
Obviously, understanding the distinctions is critical to avoiding unnecessary tax payments and unwanted IRS scrutiny. This is especially true in light of tax reform that changes the tax structure on support payments. Beginning in 2019, payers won't be able to deduct alimony payments and recipients won't face a tax obligation on the funds.
So, we offer this brief primer on the government's view on requirements for payments to be counted as alimony. All of the following must be true:
- Payments to or for an ex-spouse are ordered in a divorce or separation instrument
- The two individuals file separate returns
- Payments are made in cash (checks and money orders count as cash)
- The ex-spouses are not part of the same household
- The payments end on the death of the recipient
Alternatively, payments are not alimony in any of the following situations:
- Payments are voluntary
- If the funds are not in cash, paid as part of equitable distribution or upkeep of payer-owned property
- A payment is designated as not alimony in the divorce or separation instrument
- Payment is considered child support
If the formal instrument calls on one spouse to pay the mortgage on a jointly owned property, some of the payment may count as alimony.
Clearly, there can be a lot of competing interests in divorce and changes in law can alter the landscape in unexpected ways unless care is exercised.