Most of the time, if a person in California is paying alimony, that alimony is tax-deductible. According to a decision by the U.S. Tax Court, however, the amount that is deducted must be explicitly mentioned in the divorce or separation agreement.
The tax court came to this decision after the IRS challenged a man’s alimony deductions. The man, who divorced in 2007, had received a pay bonus in 2006. He agreed to pay a part of it to his wife, and the two signed an agreement regarding the amount and how the man would claim it on his taxes. The subsequent spousal support order laid out the terms for monthly payments and a percentage payment if his income went over a certain level, but it did not mention the bonus payment. As a result, the court said the man could not claim it.
An individual is also not permitted to claim an alimony deduction if they are still living in the same household with their ex. Other provisions that would prohibit using alimony as a deduction would be if the agreement specifically said the payment was not taxable or if the payer’s obligations continued even after the death of the recipient.
Alimony is separate from matters such as child support and property division. Spousal support is usually awarded when one person needs help on a temporary or permanent basis. One person might end up paying both spousal and child support depending on the circumstances. The couple may also need to negotiate property division or have a judge make a decision about separating assets. During this process, it is important that people try to balance their emotions with protecting themselves financially.