Jurbs79 Posted October 24, 2015 Share Posted October 24, 2015 I'm in the process of starting to go through a divorce with my wife of 15 years. We are negotiating tighter somewhat peacefully but we are stuck on one thing that I am not to aware about. I will be paying her alimony but not quite sure how it works and what would be the most beneficial to both of us....paying her from my net or gross income. We agreed to 30% of each weekly check I receive but she is worried about getting hit on taxes at the end of the year and I want to keep the payments as low as possible each week but the writing it off on my taxes I know would be a benefit to me. Just looking for some clarity! Link to post Share on other sites
loveboid Posted October 24, 2015 Share Posted October 24, 2015 You could write it in your property settlement that it's a settlement that is non-deductible and non-taxable. You have to explicitly say that. You cannot call it alimony in your settlement. The IRS has their rules on what is a non-taxable, non-deductible settlement and what is alimony--I would look them up. The IRS expects the wording in the settlement a certain way so they know what to tax and what not to tax. There are other differences besides taxes. Alimony ends on remarriage. Alimony as settlement doesn't. Alimony ends on death of recipient. Alimony as settlement gets inherited. Alimony vs. Property Settlement - Divorce Source Link to post Share on other sites
loveboid Posted October 24, 2015 Share Posted October 24, 2015 If you have an iOS device there is an app by Easy Soft that calculates lump sum alimony buyout based on your's and her's tax brackets. It calculates how much she gets total after taxes and how much you pay total after deductions. It may help in your decision. Link to post Share on other sites
Tayla Posted October 24, 2015 Share Posted October 24, 2015 alimony is tax deductable. The judge determines if alimony is necessary, needed, permanent or temporary. Get a lawyer, and a good one at that. Refrain from calculations til you get both sides of the ledgers in order. Discovery is first to be presented. I'd target temporary... if at all. But Then again, I treat the splitting of marital assets like ending a business. Liquidate, and move on. No business dissolution has a lifetime pay out. Why should one spouse? 3 Link to post Share on other sites
angelcake Posted October 24, 2015 Share Posted October 24, 2015 alimony is tax deductable. The judge determines if alimony is necessary, needed, permanent or temporary. Get a lawyer, and a good one at that. Refrain from calculations til you get both sides of the ledgers in order. Discovery is first to be presented. I'd target temporary... if at all. But Then again, I treat the splitting of marital assets like ending a business. Liquidate, and move on. No business dissolution has a lifetime pay out. Why should one spouse? I completely agree. OP, unless your wife is disabled or unable to work, giving her 30% of your income is a lot IMO. It's best to break ties at some point and not to be stuck paying that forever. It's a bit funny to me to think she would be worried about paying taxes on the money she will be getting for free. Maybe it's just me, but that sounds very greedy. Get a good lawyer and do what is fair for both parties. Maybe give her alimony to help her get on her feet, and then cut it. (This is coming from someone who started from scratch after nearly two decades of marriage, and never got a cent in alimony.) 1 Link to post Share on other sites
loveboid Posted October 24, 2015 Share Posted October 24, 2015 The one saving grace of having to pay alimony if ordered to do so by the judge or for whatever reason is if you pay it as a lump sum, deductible or otherwise, she cannot come back later to modify it up. This will save you lots of lawyer fees from her frivolously taking you back to court for more money. On the other hand, with monthly alimony she could sue you for upward modification for the rest of your life. She could ask for your new wife's financial statements and get some of her money too. Link to post Share on other sites
loveboid Posted October 24, 2015 Share Posted October 24, 2015 Make sure you have an ending date and wording that she is expected to get back in the workforce. This is called a Gavron warning. Make sure there is a cohabitation clause that says alimony ends if she has a supporting relationship whether they live together or not. Some women have a wedding to a new husband but never register the marriage license so they can keep alimony. You can even put in a clause that says you both waive your rights for modification, up or down. If you must pay alimony educate yourself more. Alimony is bad enough but it is also a gotcha situation where it could come back and hurt you. Link to post Share on other sites
loveboid Posted October 24, 2015 Share Posted October 24, 2015 As for gross or net there are Alimony reform laws taking place all over the U.S. to update antiquated alimony laws. Texas has updated laws with a formula for calculating alimony that makes alimony consistent and predictable. There is new law that is likely to pass in Florida with formulas also based on income of spouses and length of marriage. For example Florida's proposed changes: Amount for marriages < 20 years: .015 x years of marriage x difference in gross monthly income Length for marriages < 20 years: .25 x years of marriage Amount for marriages > 20 years: .020 x years of marriage x difference in gross monthly income Length for marriages > 20 years: .75 x years of marriage If she is not working and/or educated then she is expected to get a full time minimum wage job and you can use that (~$16,000/yr) as her gross monthly income. Florida is hoping to cap alimony + child support combined to no more than 55% of payors gross monthly income. Link to post Share on other sites
Author Jurbs79 Posted October 24, 2015 Author Share Posted October 24, 2015 Sorry, I should have clarified more. We have come to a fair agreement with all of our terms. She hasn't worked in over 8 years, we will have joint custody with me as custodial parent and not paying child support, splitting our debt, her receiving 50% of my 401k....the alimony portion is 30% for 4 yrs and 20% for 2 years and then it is done. My main question is what would be the smartest way for us to set it up, paying her from my gross pay or net pay. I need as much money weekly as possible. We are not in any disagreeable with anything just looking for what option would be best for both of us. Link to post Share on other sites
loveboid Posted October 24, 2015 Share Posted October 24, 2015 I don't really see any other way to lower alimony payments and avoid taxes except to pay alimony in the form of a property settlement. Marital assets divided in a divorce are non-taxable. Hypothetically, if you have decided to pay her a total of $100,000 alimony and after deductions you only pay $75,000, and after taxes she only gets $80,000 then you could offer her $75,000-$80,000 divided in monthly payments and that would be the same as $100,000 in payments before taxes and deductions. The monthly amount is lower, she wouldn't have to pay tax and you wouldn't get deductions. You would have to word this correctly in your settlement as I said before. You didn't say if you are splitting a house so you're probably not. For completeness sake, you could trade a marital asset for alimony. Say you have equity in your half of the house that equals the total alimony you want to pay. Instead of saying you're paying alimony in your settlement, you say you are giving her extra equity through monthly payments. Payments of house equity are non-taxable. You could trade more of your 401k for alimony and with careful planning she could get monthly payments directly from the 401k before retirement without incurring the 10% early withdrawal penalty. But she'd still have to pay income tax. Also there is something called a structured settlement annuity but I have no idea if that helps you. It sounded interesting and I thought you may want to look at it. Taxes and deductions have nothing to do with net or gross. It's the total amount either way that the IRS looks at. I would consult a Certified Divorce Financial Analyst to calculate taxes, deductions, net/gross, etc. Link to post Share on other sites
carhill Posted October 24, 2015 Share Posted October 24, 2015 OP, considering the life work at stake here, even if you're limiting legal help on the D, this is one area where someone who knows family and tax law could really help you both. At the firm I used, there were both estate planning and tax attorneys involved, in addition to family law. In reality, the cost of their advice was minimal relevant to the work product they provided and the peace of mind which ensued, now years down the road from the actual D. If you're a US citizen, or subject to IRS regs regarding your presence here, try this link at the IRS regarding alimony: https://www.irs.gov/publications/p17/ch18.html 1 Link to post Share on other sites
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