Some divorces involve one former spouse making payments to the other former spouse in order to provide continued financial support as he or she moves forward in life. This type of post-marital payment is known as alimony, though it is not always ordered by the court in a divorce. Typically, if a divorce decree includes provisions for alimony, then certain tax laws will apply to both the payer and the recipient. Illinois residents might wish to note a recent case that pertained to this issue.
When a court has ordered alimony payments, it is common that the former spouse making the payments is able to deduct the amount on his or her tax forms. The recipient of the alimony must pay taxes on the amount received as it is then considered a form of income. The IRS also requires that it be decreed in writing, signed by all appropriate parties, and state that payments will cease upon the death of the recipient.
It is important that those involved make certain that all requirements and regulations regarding alimony provisions have been met when contracting this type of agreement. In one incident, a woman did not report the payments she’d received as taxable income. After an audit conducted by the Internal Revenue Service stated that the woman had not correctly filed/paid her taxes, she requested that the Tax Court deem that the necessary requirements of the alimony contract had not been met.
The woman pointed out that though the decree specified that payments from her former spouse would stop if she remarried or cohabited, it did not include the required stipulation that payments would cease upon her death. Therefore, she claimed that she could not be taxed on the payments as income, since the contract did not meet the necessary requirements. The Tax Court ruled in the woman’s favor. Anyone in Illinois who has questions or concerns about alimony is able to seek answers and guidance by consulting with a family law attorney in the area.
Source: nevadaappeal.com, “What are not taxable alimony payments?“, John R. Bullis, Oct. 12, 2015