Divorce can affect the finances of both parties for years after the dissolution of marriage is complete. One spouse may have new obligations of child support and/or alimony payments. There is more. There’re changes in how both parties to the divorce will file their tax returns. There is more. There’re tax-related concerns that a divorced couple should consider.

The most obvious effect on the taxes is how the tax return is filed. The status of “Married Filing Jointly” usually offers the most tax advantages. You can file under this status until the divorce is final. If you decide to file “Married Filed Separately,” you should know that you can not claim Earned Income Tax Credit. OK. So, if you have children & your income qualifies you for Earned Income Tax Credit, you may consider working together to file jointly & share the amount of the Earned Income Tax Credit.

Alimony is tax deductible to the person who pays it, & included in the taxable income of the person who receives it… Child support, by contrast, isn’t considered taxable income to the person who receives it & not tax deductible to the person who pays it… When two parties to a divorce have dramatically different incomes, there may be some tax advantages to using alimony, even if a judge would not ordinarily award it… A spouse with a significantly larger income could pay a substantial alimony instead of child support. Many times, the spouse with the large income can afford to pay enough alimony to compensate the recipient spouse for the extra tax they will have to pay & still save money.

In order for payments to an ex-spouse to constitute alimony, there’re many requirements that you have to satisfy. They are outlined in IRC ?71. The payments must be in cash, checks, or money orders. Alimony can not actually be made in debt, property, or services. There is more. The payments must be provided for in a divorce or a written agreement. You can not claim alimony during any year for which you file a joint tax return. You can not claim alimony while sharing a residence with your spouse. The payments have to stop when the recipient divorce dies.

If both parties to the divorce have similar incomes, it’s probably best to use child support instead of alimony. The non-custodial spouse making the payments is likely unable to compensate the custodial parent for the extra taxable income they must claim on their taxes. Right. When considering whether to use child support or alimony, it’s advisable to consult an accountant or tax professional to determine which would be best for both parties involved.

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