If you are set to receive or pay spousal support in New Jersey, it will be helpful to understand the types of spousal support and their tax implications. Being knowledgeable about this will help you plan for the future and ensure that your financial interests are protected.
What is spousal support?
Spousal support is meant to provide financial assistance after a divorce or separation. It can be paid in the form of child support and alimony. Child support, though paid to the ex-spouse, is meant to be used to cover the financial costs of raising a child. Alimony, however, is meant to offer reasonable financial support to the ex-spouse, particularly in cases where one spouse earned significantly more than the other during marriage.
Factors that affect alimony
Spousal support in the form of alimony is not a guarantee in a divorce case. Before awarding alimony, the court will consider a variety of factors, which include:
- The length of time the couple was married
- The standard of living enjoyed by both during the marriage
- The financial status of both parties and their capability for earning income
- The age and health situation of each party
- The reason why the parties divorced, such as if one committed adultery
Tax implications for spousal support
After the passage of the Tax Cuts and Jobs Act, the rules about the tax implications of alimony changed. In the past, the person paying alimony in cash could claim it as a deduction, and the person receiving it had to report it as income, but the legislation changed this. A person who pays alimony cannot claim it as a deduction, and at the same time, the person receiving it cannot report it as income. The same is the case for child support. Additionally, if child support is not paid, the state and the IRS can garnish the payor’s tax refund for payment.
Both paying and receiving alimony come with certain tax implications. This is why it’s important to carefully negotiate a support agreement if possible, or the issue will be left up to the court.