Alimony Payment

What Is an Alimony Payment?

An alimony payment — also called a “spousal” or “maintenance” payment in some parts of the United States — is a periodic, predetermined 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.

How Are Alimony Payments Determined?

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. When a married couple becomes legally separated or divorced, both parties can agree to the conditions of alimony on their own. However, if they can’t come to an agreement, then a court may determine the legal obligation — or alimony — for one individual to provide financial support to the other. Some of the things that a judge will consider include:

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 — also might 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.

Specific types of alimony available can vary from state to state. In California, for example, there are five:

As evidenced in the alimony types above, the termination of alimony is flexible and open to negotiation. Other situations that might be used as the reason to stop payments include retirement, children no longer requiring the care of a parent, and a judge’s determination that a recipient is not making a good-faith 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, non-cash 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:

Taxes on Alimony Payments

Divorce comes with its own set of tax implications, some of which were modified by the Tax Cuts and Jobs Act (TCJA) of 2017, which 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 on or 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 on or after Jan. 1, 2019, no longer qualify for tax deductions for payment of alimony under the Tax Cuts and Jobs Act (TCJA).

Instead of cash payments structured into divorce decrees starting in 2019, some tax advisors suggest that the higher-earning partner award the spouse an individual retirement account (IRA), which is in effect a tax deduction, as no taxes had been paid on the amounts added to the account.

A potential issue here, though, is that the money ordinarily can’t be taken out before age 59½ without incurring a 10% penalty.