Many divorced women already know that if they receive a monthly check for spousal support they must claim that money at the end of the year as income. But what some don't know is that spousal support can take forms other than a monthly check.
Some types of payments that the Internal Revenue Service may consider spousal support include:
1. Cash payments, including checks and money orders, to a third party on behalf of a spouse. Examples include payments for a spouse's medical expenses, housing costs (rent, utilities, etc.), taxes and tuition. These are all treated as income received by the spouse who benefited.
2. Premiums paid pursuant to a settlement agreement for insurance on one spouse's life, to he extent that the other spouse owns the policy. It isn't uncommon for a spouse to be required to carry life insurance with the ex-spouse as the beneficiary. Life insurance on the spouse paying child support would replace the loss of those funds should that spouse die. The premiums being paid on the policy could be deductible by the payor and considered income for the beneficiary.
3. Expenses for a home jointly owned by you and your spouse.
4. A portion of mortgage payments on a jointly-owned home. If one spouse must make all of the mortgage payments, one-half of the amount paid for the year can be deducted as spousal support. If deductions are itemized and the home is a qualified home, half of the interest can be claimed in figuring your deductible interest. That means one-half of the payments must be reported as spousal support received.
5. A portion of the real estate taxes or insurance on a home held as tenants in common. If one spouse pays all such expenses, that person can deduct one-half of these payments as spousal support. Meanwhile, the receiving spouse would have to report it as income. If a jointly owned home is held as by both spouses as tenants by the entirety or joint tenants, none of the payments for taxes or insurance are considered spousal support.
For more information on how your divorce or separation will impact you at tax time check out IRS Publication 504.
If you can afford it, hiring a certified divorce financial analyst will keep you from making mistakes out of ignorance. Do your homework and/or develop a relationship with a professional trained to protect you during settlement negotiations.
Cathy heads up About.com's Divorce Support channel.
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