Tax implications – Support payments

Tax rules treat child support and spousal support very differently. Spousal support payments are “above the line” deductions for the payer, and income for the recipient. Child support, on the other hand, has no tax consequences – there is no tax paid by the recipient and no tax deduction for the person paying child support.

There is also a relatively new concept called “unallocated support”. Unallocated support means that the payments will go to support both the ex-spouse and the children, but there is no set amount for how much of the payment goes to each party. The net result is that full payment is tax deductible to the payer and taxable to the recipient.

Implications for your divorce settlement

The difference in how these payments are handled, while adding complications on the surface, actually bring opportunity. Being creative when it comes to support payments may help both parties. By giving more spousal support or unallocated support, you may be able to get more after-tax cash to the low-earning spouse and lower the tax rate of the high-earning spouse. This may make the difference between a workable settlement and one that on for a very long time.

Another example of how to use this to your advantage is in getting a loan. Spousal Support is considered income, while child support is not. If you know you will need a new car soon, getting more spousal support may improve your chances of getting a loan. If you are the payer, it may be beneficial to have higher child support payments if the kids are older and child support payments will stop sooner.

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Jeff Kostis, President

Certified and experienced, Jeff shares his insight to help educate each client.

  • CPA/PFS, 2008; CPA, 1995
  • Master’s degree in Accounting, University of Texas, 1993
  • Graduate of Bradley University, 1991