Monthly Archives: July 2012

Alimony v. Child Support

What is the difference between alimony and child support? There are two distinct differences: child support, in general, is not taxable and the amount is determined based on specific guidelines set  by the state. Alimony, on the other hand, is taxable to the person receiving it and tax deductible to the person paying it (as long as it qualifies per the Internal Revenue Code). In addition, the majority of states do not prescribe any specific guidelines for the amount of alimony to be paid.

In Connecticut as well as many other states, it is common practice to combine both alimony and child support together as one payment. As long as this payment qualifies under the statutes, it is possible to claim the entire amount as taxable support. The big question then becomes how should support be structured? As a combination of child support and taxable alimony, or as one combined payment treated as taxable support? The answer to this question lies in careful tax analysis. Every case is different and depending on the level of income, the number of dependents, the amount of deductions and other considerations, the answer could go either way.

If you are in a situation where you are confronted with either paying or receiving support, you owe it to yourself to ask this question to a qualified tax expert. If you are in a cooperative situation with your soon-to-be ex spouse, the two of you can structure an agreement whereby you minimize the tax impact of support and maximize cash flow to both parties. A win-win situation which is not always easy to achieve in a divorce.