What Is an Alimony Payment?
The term alimony payment refers to a periodic pre-determined sum awarded to a spouse or former spouse following a separation or divorce. The payment is the actual sum paid to fulfill alimony, which is the obligation to make payments for support or maintenance. Alimony payment structures and requirements 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 for decrees made 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. Alimony payments are also called spousal or maintenance payments in some parts of the United States and are quite common in divorce and/or separation proceedings. Payments are normally issued in cases where one spouse earns a higher income than the other. The conditions of the agreement depends 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. This represents the type of financial support to which he or she is accustomed to throughout the life of the marriage. If, however, they can't come to an agreement, a court may determine the legal obligation—or alimony—of 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—may 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 his or her 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.
The Tax Cuts and Jobs Act 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. These are big changes that will affect how many divorce decrees will be structured. This means that the Internal Revenue Service (IRS) permits alimony payments to be tax deductible by the payer for divorce or separation agreements executed before 2018. Agreements before 2019 that were later modified stating the repeal of alimony payment deductions also do not qualify.
Decrees made after Jan. 1, 2019 no longer qualify for tax deductions under the Tax Cuts and Jobs Act.
Alimony payments are allowed to be deductible by the payer. The recipient of alimony payments, though, must include them as income on their annual tax returns.
According to the 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
- Payments must be made when spouses live apart
- There's no liability to make alimony payments after the recipient spouse dies
Alimony does not include child support, noncash property settlements, voluntary payments, or money used to keep up the payer's property.
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. The spouse who receives the account would have to pay taxes, though presumably at a lower rate. But the money can't ordinarily be taken out before age 59.5 without incurring a 10% penalty.