Child Support vs. Spousal Support: Tax Benefits and Tax Traps

Support payments pursuant to divorce receive different tax treatment depending upon whether they are characterized as child support or spousal support (referred to also as maintenance or alimony). This is a potential tax planning opportunity, but there are important pitfalls that need to be addressed in the tax planning process.

Payments classified as child support are not taxable to the payee spouse and not tax deductible by the payer spouse. Payments classified as spousal support are taxable to the payee spouse and tax deductible by the payer. These payments are not only tax deductible, but “above the line” adjustments to income, meaning that the payer spouse does not have to itemize deductions to get the tax break. In theory, divorcing spouses may be able to save money in taxes by taking advantage of this difference, but must be careful in how they do this. (Click here to continue)

Child Support Using A/B Expenses

Using child support guidelines is not for everyone. An alternative that has been used a number of times in mediations done through the Center for Family & Divorce Mediation divides child-related expenses into two categories:

A expenses -- for regular, recurring expenses, and
B expenses -- for irregular, or non-recurring expenses.

In this method, the non-residential or non-custodial parent pays a fixed monthly amount for A expenses and a share of the B expenses. Actually the Child Support Standards Act in New York, and the guidelines of other states, do this, in part, by separating medical, educational and child care costs and having both parents share these proportionately based on their incomes. (Click here to continue)

Money Madness

For most divorced families, custody and visitation were set up simultaneously with child support. Because these things all have to do with your child and where he or she lives, they are intertwined in your mind. Somehow, you see them all as part of a package. But these two things should not be seen as dependent on each other or related.

The truth is that the time your child spends with both of you has nothing to do with child support. Custody is only the preliminary factor in setting up child support. The non-custodial parent must pay it to the custodial parent. But beyond that, what happens with your parenting plan has no impact on child support.

Many parents believe that child support should somehow be adjusted to account for time the child spends with the non-custodial parent. After all, they reason, when the child is with that parent, he or she is in charge of meeting the child’s needs and if the non-custodial parent has the child for an entire week in the summer, there shouldn’t be any child support being paid for that week. Wrong! It doesn’t matter if the non-custodial parent spends one day a week or 7 days a week with the child, child support is not affected. (Click here to continue)

The Role of the Children

Many people on the cusp of divorce ask if the children can decide with whom they will live. Generally, children, particularly young children, do not play a role in the decision. In most states, the preferences of the children are accorded more weight as they get older, and a child of 15 or 16 will have great influence if the parents cannot agree. From a psychological perspective, asking children to choose between parents is quite destructive because it gives children a kind of power that frightens them -- no matter how they choose, they worry about betraying one parent. When you and your wife start to make the decisions about parenting, you will already know the preferences of your children, and there is little to be gained by asking them. You do your children a great favor by not asking them and by acting like parents by making the important decisions yourselves.

Can Parenting Arrangements Be Changed Later?

Until a child reaches the age of emancipation, the court retains ultimate jurisdiction over the child. This means that you can always go back to court to seek a change in the parenting arrangement. You and your ex-wife can make any changes at any time if you are both in agreement, but unilateral change against the will of the other parent can be made only with the permission of the court. (Click here to continue)

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