What are the potential tax consequences of spousal support?

Marriage is type of economic partnership and thus experiences certain tax implications at its dissolution. The most notable of which are support payments.

Spousal support payments received in a specific calendar year are taxable to the recipient and deductible to the payor so long as:

1. The parties are living separate and apart by reason of the breakdown of their marriage at the time the payments are made;
2. The payments are considered an allowance payable on a periodic basis;
3. The payments are made for the maintenance of the recipient so that the recipient has discretion as to how the support is used;
4. The payments are made directly to the recipient spouse or are considered third-party payments;
5. The payments must be made pursuant to a court order or written agreement; and,
6. The agreement or order must refer to the amount as "spousal support amount" or "spousal support".

Spousal support payments paid by an estate are not taxable to the recipient or deductible by the estate.

A lump sum spousal support payment is not taxable in the recipient's hands or tax deductible to the payor.

To learn more about spousal support payment, contact the family lawyers at Krol & Krol today at 905.707.3370.