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Divorce mistakes with lost alimony deductions

On Behalf of | Aug 29, 2017 | Divorce |

Virginia couples headed toward divorce may want to learn all they can about property division requirements under state law and the tax consequences of dividing various assets. In addition to saving money for both parties, this information could also be useful during negotiations. One of the typical provisions of a divorce agreement is spousal support. Couples may use the beneficial tax status of alimony to harmonize other aspects of property division.

Alimony serves as income replacement for the lower-earning spouse. As such, it is taxable as income for the former spouse receiving it. The person ordered to pay alimony in a divorce agreement can claim the amounts as a tax deduction. There are several ways this deduction must be qualified. One qualifier is that the receiver cannot file a joint 1040 or live in the same residence as the payer. Alimony must also be distinct from child support, which is not taxed as income or deductible.

Other complex tax rules may result in negative consequences years later for the unwary. The recapture rule can result in a portion of deductions during the first two years becoming income in the third year for the payer. Lesser known outcomes, should be considered to work out a better agreement for both parties in an uncontested divorce.

Specialized knowledge of how taxes can effect certain types of asset transfers may help prevent costly mistakes and agreement dissatisfaction among divorced couples in Virginia. The overlooking of small details, such as a payment reduction when children reach certain ages, can lead to the loss of thousands in deductions every year. An attorney with experience practicing family law in Virginia may be able to help prevent errors and yield a more satisfactory, lasting divorce agreement.


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