How alimony and child support affect taxes

On behalf of Loughmiller Higgins, Attorneys at Law posted in Family Law on Wednesday, March 13, 2013.

When a couple with children divorce, the sheer number of decisions that must be made can feel overwhelming. Matters of child custody take precedence, but once those details are worked out, Texas parents often turn their attention to the financial ramifications of the end of the marriage. The manner in which a couple approaches matters of alimony and child support can make a world of difference to the eventual outcome of the divorce, and the financial stability of each spouse as they move forward in their own lives.

One issue that deserves careful consideration is how matters of child support and alimony are to be handled. In cases in which one spouse expects to receive both child support and alimony, the manner in which those payments are structured can have a significant impact on one’s tax obligations. For example, alimony payments are considered a form of income, and receiving the payments can bump an individual up to s higher tax bracket.

However, child support payments are not counted as income. As such, for parents who are near the income qualifications for a higher tax bracket, structuring the divorce to provide for higher child support and low or no alimony can make sound financial sense. Yet another way to address this issue is to structure a settlement in which the receiving spouse accepts one large lump sum payment in lieu of alimony.

When a divorcing couple in Texas is able to work together to determine the best way to address alimony and child support issues, the net result can be financially beneficial to all involved. In addition, retaining more income to put toward the needs of the family is a far better outcome than losing that money to taxes. When working through one’s legal options in regard to divorce, it is imperative to take the time to also address these and other financial matters.

Source: Forbes, “Taxes And Divorce: 6 Tips For Women,” Kerry Hannon, Mar. 7, 2013

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