Alimony and Taxes in Georgia Divorce

The New Rules for Alimony and Taxes

You may be aware that Congress recently changed the tax code when it comes to alimony. These changes apply to all divorce and separate maintenance agreements or orders entered after January 1, 2019, including Georgia divorces. If you pay alimony, you can no longer deduct it from your taxable income for tax purposes. In addition, recipients of alimony do not have to include alimony payments as taxable income. It is critical that you are aware of these changes when negotiating your divorce or separate maintenance actions. As you can imagine, these changes will have major implications on your budget—and that of your spouse.

If You Are Receiving Alimony

Under the new rules, if you are receiving alimony, be aware that your spouse may be reluctant to pay as much alimony as some of your friends receive who were divorced before January 1, 2019. Be mindful of this and look to other parts of the marital estate to extract equity—such as retirement accounts, savings accounts, or real estate. It will be important to invest the assets you receive in the divorce settlement wisely so that you can ensure that your cash flow needs are met with sources other than alimony.

If You Are Paying Alimony

If you are paying alimony, you can no longer take advantage of the tax deduction for alimony payments. Therefore, negotiating more aggressively on alimony payments and looking for other areas of the marital estate to satisfy the needs of your spouse is worth exploring with your attorney. If you are paying both child support and alimony, this could severely restrict your cash flow. It may be more beneficial if you pay your spouse with a greater portion of the retirement assets or equity in the home. This would help by reducing the amount of alimony you are paying on a monthly basis to free up monthly cash flow.

Remember, these new rules do not affect divorces or separate maintenance agreements that were finalized before January 1, 2019. The old rules, described below, will still apply to those agreements.

The Old Rules for Alimony and Taxes

For tax purposes, the old rules state that alimony in divorce or separate maintenance agreements reached before January 1, 2019, should be included as taxable income to the recipient and deducted from the taxable income of the paying spouse. If you’re curious, IRS Code Sections 71 and 215 are the areas that govern the tax implications of alimony before January 1, 2019.

The old rules state that for alimony to be taxable to the recipient and deductible to the person paying it, it must meet the seven requirements of Code Section 71. To summarize those requirements:

1. The payments must be legally categorized as alimony based on the fact that the payments originated under the terms of a divorce or separation agreement. The approved types of divorce or separation instruments include a decree of divorce or separate maintenance or a written instrument incident to such decree, a written separation agreement, settlement agreement, or another decree requiring a spouse to make payments for the support and maintenance of the other spouse.
2. Payments must be made in cash. Cash payments to third parties qualify so long as they are made under a divorce instrument and are for the benefit of the payee spouse.
3. Payments must be designated as includible as income and allowable as a deduction in your settlement agreement or divorce decree.
4. The spouses cannot both live in the same household.
5. The payments must end upon the death of the spouse receiving alimony payments.
6. If the spouses are still married and have alimony they would like to address in their respective tax returns, they cannot file a joint tax return. If they filed a joint tax return, the income and deduction would be offset so that there would be no tax consequence.
7. Finally, alimony payments are only for spousal support and maintenance. They cannot be used as child support. Because alimony payments are meant to be based on the receiving spouse and not on the children, the IRS will presume the payments are for child support if the payments will be reduced on the occurrence of certain milestones in the lives of the children. For example, payments that are reduced when a child reaches a certain age, leaves school, enters college, or dies will be presumed by the IRS to be child support and not alimony.

SPEAK WITH A QUALIFIED GEORGIA DIVORCE ATTORNEY

When preparing to file your taxes during or after a Georgia divorce, you need qualified experts to assist you. The Marietta family law attorneys at Bivek Brubaker & Prescott LLC have years of experience dealing with all types of Georgia divorce cases. We would be happy to speak with you to answer any questions you have about your divorce. In addition, it is always best to consult with a CPA about alimony before filing your tax return. You can contact us or call 404-793-6530 to speak with one of our highly qualified Georgia divorce attorneys.