Alimony (spousal maintenance) is a payment of money to a former spouse that continues after divorce. Alimony is tax deductible to the payer and taxable as income to the recipient if the payments truly qualify as alimony under IRS rules. Creative divorce settlements in mediation that include alimony or spousal maintenance can keep money out of Uncle Sam’s pocket and in your family’s – unless the IRS does not see it your way.
When negotiating or mediating alimony or spousal maintenance, always consult a tax specialist who has specific knowledge about divorce tax rules. You can get burned with taxes and penalties if you get it wrong. This article is a general overview of alimony rules and is not a substitute for advice from a licensed tax professional.
Alimony in Texas is either court ordered (involuntary) or contractual (by agreement).
Alimony General Rules
To be alimony, a payment must meet certain requirements. As of the date of this article, the following general alimony rules are listed in the IRS’s alimony publication as applying no matter what year the divorce decree or separation instrument was executed (additional rules apply to pre-1985 instruments):
Payments Not Alimony
Not all payments under a divorce or separation instrument are alimony.
Alimony does not include:
- Child support,
- Noncash property settlements,
- Payments that are your spouse's part of community income as explained under Community Property in Publication 504,
- Payments to keep up the payer's property, or
- Use of the payer's property.
Payments to a third party. Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc.), taxes, tuition, etc. The payments are treated as received by your spouse and then paid to the third party.
Life insurance premiums. Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy.
Payments for jointly-owned home. If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse, some of your payments may be alimony. If you must pay all the mortgage payments (principal and interest) on a jointly-owned home, and they otherwise qualify as alimony, you can deduct one-half of the total payments as alimony. If you itemize deductions and the home is a qualified home, you can claim one-half of the interest in figuring your deductible interest. Your spouse must report one-half of the payments as alimony received. If your spouse itemizes deductions and the home is a qualified home, he or she can claim one-half of the interest on the mortgage in figuring deductible interest.
Taxes and insurance. If you must pay all the real estate taxes or insurance on a home held as tenants in common, you can deduct one-half of these payments as alimony. Your spouse must report one-half of these payments as alimony received. If you and your spouse itemize deductions, you can each claim one-half of the real estate taxes and none of the home insurance. If your home is held as tenants by the entirety or joint tenants, none of your payments for taxes or insurance are alimony. But if you itemize deductions, you can claim all of the real estate taxes and none of the home insurance.
Other payments to a third party. If you made other third-party payments, see Publication 504 to see whether any part of the payments qualifies as alimony. Go to the IRS’s alimony publication to read more about these rules and to find the following table:
|Payments ARE alimony if all of the following are true:||Payments are NOT alimony if any of the following are true:|
|Payments are required by a divorce or separation instrument.||Payments are not required by a divorce or separation instrument.|
|Payer and recipient spouse do not file a joint return with each other.||Payer and recipient spouse file a joint return with each other.|
|Payment is in cash (including checks or money orders).|
|Payment is not designated in the instrument as not alimony.||Payment is designated in the instrument as not alimony.|
|Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household.||Spouses legally separated under a decree of divorce or separate maintenance are members of the same household.|
|Payments are not required after death of the recipient spouse.||Payments are required after death of the recipient spouse.|
|Payment is not treated as child support.||Payment is treated as child support.|
|These payments are deductible by the payer and includible in income by the recipient.||These payments are neither deductible by the payer nor includible in income by the recipient.|