Divorce and Taxes - Which Support Is Deductible?

For many people child and spousal support obligations are their biggest monthly expense. Considering the amount you may be paying, it is natural to seek a tax deduction for the expense, for the savings will come from your highest marginal rate (e.g., if you're at the 25% tax bracket, each dollar of reduction in your AGI (adjusted gross income) could potentially save you 25 cents in federal taxes).

Over the course of 18 years, child support payments might well equal what you might have paid for your home. Unfortunately, child support payments are not tax deductible.

Spousal support, on the other hand, is tax deductible under certain circumstances. To be tax deductible the spousal support paid must be paid pursuant to a court order. If you are paying support voluntarily (that is, without a court order), you will not be able to claim any portions paid to your (ex) spouse until there is an order. While it is admirable to pay support without an order, there is no tax benefit to it. The IRS will not allow the tax deduction until there is an order in place, either a temporary one (pendente lite) or "permanent" one (judgment). Spousal support paid pursuant to a court order is tax deductible to the payor and taxable to the recipient. The tax deductibility of the spousal support has an income shifting effect in that the payor can lower his taxable income while the recipient increases his or her taxable income. Depending on the marginal (highest) tax rates of the two, a net tax reduction can occur, as typically the higher earning spouse is taking income from his or her highest bracket and lowering it, sometimes to a lower marginal rate, while the income transferred to the supported spouse is generally at a lower marginal tax rate than the payor. For example, A, the payor spouse, might be in the 25% tax bracket and B, the supported spouse, might be in the 10% bracket. By shifting income from A to B, 15% less tax is paid on the income shifted (assuming B remains in the 10% bracket).

Family support also is tax deductible. Family support combines spousal support and child support inton one payment obligation. Like spousal support, to be deductible, there must be an order. This is a very tricky area of taxes, so you should not attempt to classify support payments as "family support" without the help of a knowledgeable attorney. Family support is tax deductible to the payor and taxable to the recipient, which means there is the same income shifting effect described above. Because the government is "losing" tax revenue, the IRS tends to scrutinize returns claiming family support and often takes the position that the family support is merely child support disguised as spousal support, especially when reductions conspicuously match dates that the parties' children turn a certain age, like 18.

In closing, it is important to know which kinds of support are tax deductible because this knowledge can help you when you are negotiating support orders. Support obligations are generally looked upon as a necessary evil (at least by the payors), but it helps knowing that in some cases the giver gets a break from Uncle Sam.