Taxes in Child Support & Alimony | Minnesota Divorce

During a Minnesota separation or divorce proceeding, a court must decide several issues of monetary nature. Maintenance agreements and child support are common and financially important agreements. Unbeknownst to some people, these court-ordered agreements come with tax implications. It is important for those in the midst of a divorce or separation proceeding understand baseline tax issues before entering into these agreements.

Alimony or Spousal Maintenance in Minnesota

Spousal maintenance agreements, otherwise known as alimony, are common in Minnesota divorce and separation proceedings. They generally dictate an amount and duration a former spouse must pay to another person.

Minn Stat. 518.522 provides for spousal maintenance agreement in order for one spouse to maintain a reasonable standard of living. A court will consider several factors before ordering a spousal maintenance agreement. Those factors are the amount of property and assets each person owns and whether either spouse lacks financial self-sufficiency. Minn. Stat. 518.552 subd. 1. Although these are the factors a court will consider in a spousal maintenance agreement, both parties are free to enter into their own alimony agreement in private without the help of a judge. Minn. Stat. 518.522 subd. 5.

Tax Law

These agreements have tax implications that individuals must consider. The IRS defines alimony as payment to or for a spouse under a divorce or separation agreement. IRS Publication 18, (2015). Although most forms of payment under a separation instrument are alimony, payments cannot be noncash or property. Generally, gross taxable income includes alimony for the recipient. I.R.C. 71. This must be reported on the alimony recipients Form 1040. By contrast, the Internal Revenue Code provides the payor of alimony may deduct the expense. I.R.C. 215. Should the amount of alimony decrease over a three year period, part of a payors alimony may be subject to recapture.

Divorce and separation proceedings may also provide for child support agreements. Minn. Stat. 518.26 subd. 20 defines child support as an amount of basic support . . . pursuant to an award in a dissolution, separation agreement. Like alimony, a child support agreement may come from judicial decree or a private agreement between two parties.

Alimony, Child Support, and Taxes

Unlike alimony, child support payments have different tax consequences. The IRS defines child support as a fixed amount of payment for the support of a child determined by a written separation agreement. Treas. Reg. 1.71-T. Unlike alimony, this is not a taxable event. The payor of child support may not deduct the expense, and the recipient of child support does not have to include the amount in taxable gross income. The logic behind this is basic payments to support a child would not have tax implications if the parents remained in a relationship to support the child.

Very few things in this world remain out of the reach of the IRS. This includes monetary agreements in a divorce or separation proceeding. It is important for people in this situation to speak with an intelligent family law attorney to inform them of all the tax consequences an alimony or child support agreement carries with it.

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