Alimony is the term used for payments to a separated or ex-spouse as part of a divorce or separation agreement. The payments are taxable to the recipient and deductible by the payer but are not treated as alimony if the spouses file a joint return with each other. Since 1985, two ways of defining alimony have been in effect, one for payments under decrees and agreements dated after 1984 and another for payments under decrees and agreements made before 1985. This article deals with only decrees and agreements after 1984 that applies to new decrees and agreements.
The following applies to alimony payments:
- Must be in cash, paid to the spouse, ex-spouse or a third party on behalf of a spouse or ex-spouse;
- Must be required by a decree or instrument incident to divorce, a written separation agreement, or a support decree;
- Cannot be designated as child support;
- Is valid alimony only if the taxpayers live apart after the decree. Spouses who share the same household can't qualify for alimony deductions. This is true even if the spouses live separately within the dwelling unit.
- Must end on the death of the payee;
- Cannot be contingent on the status of a child (that is, any amount that is discontinued when a child reaches 18, moves away, etc., is not alimony).
Payments need not be for support of the ex-spouse or based on the marital relationship. They can even be payments for property rights as long as they meet the above requirements. Payments need not be periodic, but there are dollar limits and "recapture" provisions. Even if payments meet all the alimony requirements, the couple may designate in their agreement or decree that the payments are not alimony and that designation will be valid for tax purposes.
The recipient of alimony must include it in income for tax purposes. The payee is allowed to deduct the payments as an adjustment to gross income. The payee must also include both the name and social security number of the recipient that the IRS uses with the income reported by the recipient.