Spousal Support and the Effect of Taxation

At the Law office of David P Schwarz we have handled numerous cases involving spousal support payments and the taxable deduction that can be taken by the payor spouse. Please contact our office to consult us regarding this issue at 949 735 9266 or via the web. We can also be contacted via email at dpslaw66@gmail.com

The general rule of law is that A person paying spousal support can take a tax deduction for the payment. The recipient of spousal support must pay taxes upon receipt of the payment. This is a fair principle used to make sure the payor can write off the economic hardship of paying spousal support.

On the other hand A spousal support lawyer will argue that the recipient and or payor of child support cannot benefit from any tax write off. The recipient of child support does not have to pay taxes upon receipt of the money. The payor however, cannot as in spousal support use the payment as a deduction and benefit for taxes.

A spousal support attorney will assert that the tax benefits of spousal support deductions are quite significant. When a party deducts their payments of spousal support from their tax returns they are deducting from their gross income. Therefore as a result they are earning less income. If the deductions were according to IRC 67 they would only be able to take a limited deduction which would be only 2% of adjusted gross income.

In addition, when doing taxes the spousal support payments are not subject to itemized cap on deductions which would limit the amount of spousal support a person could deduct from their taxes. This rule of law applies to both California tax returns and federal tax returns. The Orange County family law courts will support these deductions.

A higher income earner usually ends up paying spousal support after a divorce thus the tax benefit for a high income earner is very substantial. Since they can deduct their payment from the their gross income and payment of $10,000 turns out to be a $5200 payment if they are taxed at 48% of their income.

At the Law office of David P Schwarz we have creatively argued to the Orange County family law court that the Court of appeals has recognized the concept of Tax-shifting. This method of switching the tax burden onto the payee spouse would ultimately save the payor spouse significant amount of tax burden and a lot more money to pay the payee spouse. This is a very beneficial tax scheme that opens up more money to share amongst the divorced parties when money is scarce during the divorce.

In order to benefit from the tax deductions the payor spouse must pay in cash. In addition, the divorce judgment or separation agreement must order the payment of spousal support.

Finally, the spousal support payments can be negotiated to be nontaxable or nondeductable according to the parties wishes. They must also disclose to each other their social security numbers

At the Law Office of David P Schwarz we dealt with many Orange County spousal support taxation cases. Please call our office of a consult at 949 735 9266 or via the web. We can also be reached via email at dpslaw66@gmail.com