1-Maintenance payments are taxable to the
recipient and deductible by the payer. These are payments made under a divorce
or separation instrument. No minimum payment period is required.
2-Temporary maintenance payments made
while the divorce is pending and pursuant to a court order are taxable.
3-Maintenance payments must be paid in
cash or by check. If noted in the agreement, maintenance may include payments to
third parties on your behalf such as: medical expenses, housing costs (rent,
utilities, etc.) taxes, tuition, life insurance, providing these are your
obligations. (NOTE: If your ex-spouse pays your rent, but the lease is in his
name, if will not be taxable maintenance since the obligation is his.)
4-Maintenance is not: child
support, noncash property settlements, transfers of property, use of property,
payments to keep up the payer's property, voluntary payments not required by the
5-If you must continue to make payments
for any period after your spouse's death, none of the payments made before or
after the death is maintenance.
1-Child support payments are not
taxable to the recipient and not deductible by the payer. A payment is
fixed as child support under your divorce or separation instrument. A payment
will be treated as child support if the payment is reduced on the happening of a
contingency relating to the child (e.g. reaching a specific age, dying,
marrying, etc.) or at a time that can be clearly associated with the
2-If both child support payments and
maintenance are awarded:
a) Make sure the agreement clearly states
how much is for maintenance and how much is for child support; otherwise, the
IRS could make its own allocation which may be unfavorable to you.
b) If only partial payment is received,
the IRS first applies the payment to support and the balance to maintenance.
3-According to New York State's Child
Support Standards Act, child support is calculated as follows: Income less FICA
taxes and local taxes (e.g. NYC and Yonkers) times 17% for one child, 25% for
two children and 29% for three children.
4-Costs for education (after-school
programs, tuition, books, musical instruments, computers, etc.) or medical care
can be divided according to each parent's pro-rata income. For example: If the
father earns twice as much as the mother, he should pay twice as much for these
expenditures than the mother.
1-Transfers of property pursuant to a
separation or divorce agreement or annulment generally are not subject to income
tax if they occur within one year after the marriage ends. These transfers are
treated as if acquired by gift for income tax purposes. However, this does not
apply if your spouse or former spouse is a nonresident alien.
2-A transfer of property can still be
tax-free if the transfer occurs later than one year but up to six years,
providing that it is related to the cessation of the marriage and it is
authorized by a divorce decree. This circumstance could occur if there were
significant financial reasons for not performing the transfer sooner, such as it
would adversely affect an ongoing business.
3-A transfer of property in exchange for
the release of marital rights must be reported on a gift tax return for the
calendar year the transfer was made.
4-Property settlements do not
5-Your basis in the property received is
the same as the transferor's basis. (For example: Your spouse transfers to you
100 shares of IBM that he bought in 1986 for $100 per share for a total cost to
him of $10,000. On the date of transfer, the 100 shares of IBM were worth
$11,000. Your basis in the stock is $10,000, the same as when your spouse owned
it. If you sold the stock that same day, you would have a taxable gain of
Tax Exemption for Dependents
1-Beginning in 1998, there are various
credits available for the parent who takes the dependency exemption for the
child. It is now very important to reconsider giving up this exemption since you
may also be giving up significant tax credits too.
2-In situations of divorce or separation,
the parent who has custody of the child for the greater part of the year is
generally treated as the parent who gave more than half of the child's support;
and therefore, can take the dependency exemption on the tax return.
3-The noncustodial parent can take the
dependency exemption if the custodial parent agrees not to claim the child's
exemption. But, the noncustodial parent must attach IRS form 8332 to his or her
4-If you have joint custody of your
children with your ex-spouse, or legally separated spouse, and share the support
costs equally, then neither of you gave more than half of the child's support;
and therefore, neither of you can take the dependency exemption. To get around
this issue you and your ex-spouse can take turns claiming the exemption by
filing IRS form #2120-Multiple Support Declaration.
a) As long as you are still married, you
and your spouse may file a joint tax return. Filing joint usually incurs a lower
tax liability than filing "married, but separate" returns. However, if
you file joint, both you and your spouse are liable for any tax due regardless
of what your agreement states and regardless of who earned the money.
b) Innocent spouse exception: You may not
have to pay the additional tax, interest and penalties if you can prove that you
did not know and had no reason to know about any tax understatement; and, that
it would be unfair, under all the facts and circumstances, to hold you liable.
There have been numerous changes to the “innocent spouse” rules. If you are
being asked to pay tax liabilities on income earned by your spouse, you