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Understanding how alimony payments can be deducted

Alimony is often ordered in Michigan divorce cases when one spouse has been the primary wage earner throughout the marriage. If alimony is ordered or agreed upon, the payments may be tax deductible. However, the orders or agreements must adhere to the parameters outlined by the Internal Revenue Service.

According to the IRS, alimony is only deductible if it meets certain guidelines. If it does, the payors may claim deductions and the payees must report the money that they receive as income. If the alimony does not meet the guidelines, however, it cannot be deducted.

Payments of alimony must be made pursuant to an agreement or court order. All of the payments must be paid in cash or its equivalent directly to the recipient spouse or to a third party on that spouse’s behalf. The alimony cannot be designated as child support, and the obligation to pay must end upon the death of the spouse. If the couple continues to live together or files joint tax returns, the payments may not be deducted.

In divorce cases in which alimony is likely to be ordered, such as a long marriage with a large wage gap, spouses might want to seek advice from experienced family law attorneys. Lawyers may have knowledge about the complexities involved with asset division and support issues. The attorneys may help to draft agreements in such a way that the alimony agreements adhere to the mandates of the IRS. If a court order has already been issued and does not accurately reflect the alimony payments, the attorneys may file a request for a modification so that clients can obtain new orders that comply with the IRS rules.