Keeping Alimony from Being Reclassified as Nondeductible Payments

After a married couple has filed a divorce petition, the higher-earning spouse often must make various types of support payments to the lower-earning spouse. Some of these payments represent alimony and separate maintenance payments (referred to simply as alimony in this column), which are deductible by the payer in arriving at adjusted gross income and are taxable income to the payee (Secs. 71(a) and 215(a)). Other payments represent nondeductible child support and/or property distribution payments.

Taxpayers are free to choose the tax effect of alimony. It can either be deductible to the payer and taxable to the payee or receive the same tax treatment as child support if an “election out” is made. With child support payments or property settlements (i.e., payments that do not qualify as alimony), however, there is no option. Such payments are always nondeductible to the payer and nontaxable to the payee.