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Alimony and tax deductions

On Behalf of | Jun 22, 2017 | Divorce, Spousal Maintenance

When a Minnesota couple gets a divorce, one person may be required to pay alimony to the other. In most cases, the alimony is tax-deductible for the person who pays, and the person who gets the alimony must pay taxes on it. However, the alimony will not be considered tax-deductible if it is not part of a divorce agreement.

This was a decision made by the U.S. Tax Court after a husband and wife who were getting a divorce signed an agreement that involved the husband paying a portion of this bonus to his wife. Later, there was a spousal support order dealing with the alimony that the husband would pay each month plus a portion of his income if he earned above a certain amount. The support order did not include anything about the bonus, and as a result, the court said that the bonus could not be deducted.

There are a few other conditions for making alimony tax-deductible. It must end on the death on the recipient and the agreement must not specify that it is not tax-deductible or taxable. Furthermore, the two people must be living in different households.

If a couple divorces, there may be spousal support if one has earned significantly more than the other. This and other aspects of divorce may be negotiated by the couple outside of court with the help of their respective attorneys, or a judge may listen to both sides and make a decision. The couple may prefer a decision they reach themselves, but in some cases, one spouse is uncooperative and litigation is necessary. Couples should be aware that there are other aspects of a divorce that may have tax implications as well.

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