When El Paso couples divorce and alimony is awarded, the alimony payments are tax deductible for the one who pays. The person who receives the payments must pay tax on them. However, according to the U.S. Tax Court, the payments are only deductible if they are part of a formal separation or divorce agreement.
The case in question had to do with a couple who divorced in 2007. After filing for divorce but before it was finalized, the couple signed an agreement about one spouse paying half of a job bonus from 2006 to the other. Separately, a spousal support order outlined the support agreement without mentioning the bonus. The IRS challenged the payment when it was included on a tax return as a deduction, and the tax court found that since it was not part of the court order, it could not be deducted.
There are several other requirements in addition to this one for alimony payments to qualify as tax deductions. There cannot be terms that make the payment nontaxable or nondeductible, the two parties must be living in separate households, and the recipient's death must put an end to the payer's obligation.
Another type of payment one person may pay to the other after a divorce is child support. Usually, the noncustodial parent pays the custodial parent. Child support and child custody are intertwined, and these may be the most difficult aspects of a divorce to negotiate. Parents may be both concerned about how the divorce will affect their children and emotional about the prospect of spending less time with their children. Even if the divorce is contentious, parents should keep in mind that having contact with both parents is usually in the best interests of the child.