What Is an Alimony Payment?
An alimony payment, also called spousal or maintenance payments in some parts of the United States, is a periodic pre-determined sum awarded to a spouse or former spouse following a separation or divorce. Payment structures and requirements to fulfill alimony are outlined by a legal decree or court order.
- Alimony payments are legally mandated monetary transfers from one ex-spouse to another in order to support the lifestyle of the other.
- Payments are normally issued in cases where one spouse earns a higher income than the other.
- Refusing to pay or not keeping up to date with alimony payments may result in civil or criminal charges for the payer.
- The Tax Cuts and Jobs Act eliminated the tax deduction for alimony payments on divorce agreements executed after Jan. 1, 2019.
How Alimony Payments Work
Alimony is a legal obligation in which one spouse makes regular payments to the other spouse—former or current. Payments are normally issued in cases where one spouse earns a higher income than the other. The conditions of the agreement depend on how long the marriage lasted.
When a married couple becomes legally separated or divorced, both parties can agree to the conditions of alimony on their own. If, however, they can't come to an agreement, a court may determine the legal obligation—or alimony—for one individual to provide financial support to the other.
Alimony payments may not be issued if both spouses have similar annual incomes or if the marriage is fairly new. A judge—or both parties—might also set an expiration date at the onset of the alimony decree after which time the payer is no longer required to provide financial support to their spouse. Alimony can also be terminated in the following situations:
- If the receiving spouse remarries
- If one spouse dies
- If the couple's child or children become of age and no longer require adult support
- If the receiving spouse makes no effort to become self-sufficient
Refusing to pay or not keeping up to date with alimony payments may result in civil or criminal charges for the payer.
Alimony does not include child support, noncash property settlements, voluntary payments, or money used to keep up the payer's property.
Requirements for Alimony Payments
According to the Internal Revenue Service (IRS), alimony payments must meet the following criteria:
- Spouses must file separate tax returns
- Alimony payments must be made by cash, check, or money order
- Payments are made under a divorce or separation instrument to a spouse or former spouse
- The instrument must specify payments as alimony
- The spouses must live apart
- There's no liability to make alimony payments after the recipient spouse dies
The Tax Cuts and Jobs Act (TCJA) put forth by the Trump administration eliminated the tax deduction for alimony paid for divorce agreements executed after Dec. 31, 2018. Under the new rules, alimony recipients will no longer owe federal tax on this support, either.
These are big changes that will affect how many divorce decrees are structured. As things stand, the IRS permits alimony payments to be tax-deductible by the payer for divorce or separation agreements executed before Dec. 31, 2018. However, agreements made prior to 2019 that were later modified stating the repeal of alimony payment deductions will be subject to the new regulations.
Decrees made after Jan. 1, 2019 no longer qualify for tax deductions under the Tax Cuts and Jobs Act.
Instead of cash payments structured into divorce decrees starting in 2019, some tax advisers suggest the higher-earning partner award the spouse an individual retirement account (IRA) instead, which is in effect a tax deduction since no taxes had been paid on the amounts added to the account.
A potential issue here, though, is that the money can't ordinarily be taken out before age 59.5 without incurring a 10% penalty.