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Alimony or child support

Seeking a divorce decree that ensures financial stability involves more than obtaining dollar amounts or property. There are tax consequences associated with allocating alimony or child support for New Mexico couples.

Alimony, or spousal support is ordinary income that must be reported on the recipient's tax return is becomes an ongoing financial obligation for the recipient. It is also deductible from gross income on the payer's taxes.

Child support, however, is not considered as income to the recipient and is not deductible for the payer. If the total of alimony and child support paid is lower than the amount in the divorce decree, the amount of the money paid over the required child support is considered alimony.

Accordingly, for tax purposes it may be advisable for the spouse receiving support to seek a settlement that provides for payment of higher child support. The federal and tax brackets covering the recipient also play a role in calculating tax liability.

Other factors should be evaluated before considering settlement offers or relief in court. The children's ages govern the number of years that child support is paid. Likewise, the length of the marriage determines the time that spousal support is required.

Spouses should consider payment for continuation of life and medical insurance and the amount and length of time of these payments. Determining which spouse is responsible for payment of college tuition is also important.

Planning should not be restricted to the amount and length of time of payments. A spouse should consider measures limiting their former spouse from seeking future reduction of their legal obligation of paying spousal, child and other support payments.

Alimony also has other tax planning implications. It qualifies as earned income for IRA contribution purposes. Child support, on the other hand, is not considered as such. Accordingly, the recipient of alimony who has no earned income may be able to make contributions to an IRA.

A spouse should seek the advice of a qualified family law attorney with seeking a decree or settlement that covers their living expenses and protects their financial future. An attorney can help assure that a spouse obtains a fair and reasonable outcome.

Source: Monterey Herald, "Tax Tips: Alimony vs. child support," By Barry Dolowich, CPA, Oct. 3, 2017

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