Tax Relief: Save On Alimony

It can be said with conviction that no couple ties the knot with divorce in mind. No doubt that on your wedding day you think of everlasting love and marriage. But for reasons you can?t help, the dream just fades away. Believe it or not more than a million Americans divorce every year. It may be an easy option to get out of the relationship but are you prepared for the challenges which come up after the divorce? There are many things to be considered and a very important one being money. It will be helpful to understand tax implications.

Tax has to be paid by the person who is receiving the alimony, but the individual who gives it gets tax relief on the amount. It is not essential that the payment is made as divorce settlement; even cash given for maintenance attracts tax relief. There needs to be a legal obligation to pay, however, for the payment to be considered as alimony. It is always better to have a legal document such as divorce settlement or maintenance agreement. This could come from the court as well. The tax relief is available in the year of payment.

An essential condition for claiming tax relief in respect of alimony payment is that a joint return should not have been filed by the spouses. They should not be residing in the same house at the time payment is made. The payment also has to be actual and not a promise. There should be actual transfer of money from one spouse to the other. Further, if the payment is made for the purpose of child support it does not qualify for tax relief as it is not considered alimony payment.

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