Is Alimony Taxable in New Jersey?
If you have been required by a court to pay alimony, you are likely wondering: Is alimony taxable? What about child support and property distributions?
Until the “Tax Cuts and Jobs Act” (TCJA) goes into effect on January 1, 2019, alimony is a tax deduction for the person paying it and is taxable income to the recipient in New Jersey. After December 31, 2018, alimony will no longer be a deduction for the payer, and the recipient will no longer have to pay taxes on the alimony they receive. Divorces finalized before the end of 2018 will not be affected by the new tax reform law.
At Tournour Law in East Brunswick, NJ, we understand how separation and divorce can complicate your life and your finances. Frank E. Tournour is a New Jersey Supreme Court’s Board-certified attorney who can help you understand how taxation will affect your alimony agreement.
If you are making alimony payments to a former spouse, you are not required to pay taxes on those payments. Your former spouse, on the other hand, may be required to pay taxes on the alimony payments he or she receives. Please note that this does not apply to child support.
Both parties can decide to make payments non-taxable and non-deductible, but this must be made clear in the marital settlement agreement and it must apply equally to both parties. If a former spouse makes payments to a third party (such as paying a mortgage directly), those payments are viewed as benefiting the recipient and must be treated as direct payments for tax purposes, even if he or she never handled the money directly.
In order for payments to be recognized as alimony, a court-issued separation agreement or a divorce decree must classify them as such.
Ways to Make Alimony Tax Deductible
Alimony can be a tax deduction for the payer if:
- You and your former spouse do not live together
- You and your former spouse do not file a joint tax return
- Your former spouse receives the payment in cash (this includes checks and money orders)
- The payment is designated as alimony in the legal separation or decree of divorce
- The payment is not treated as child support or part of the property settlement
In order for payments to be recognized as alimony, a court-issued separation agreement or a divorce decree must classify them as such. Any payments made to a spouse or former spouse before this document has taken effect cannot be considered alimony for tax purposes, and you will not be able to deduct them.
Alimony Alternatives that Affect Taxes
There are several alternatives to alimony payments. For example, an upfront lump sum can be a viable substitute for monthly payments. If it is given as part of the division of assets, it is not taxable to the recipient or tax deductible to the payer. During a consultation, we can explain these alternatives and help determine which will serve you best.
We Are Ready to Help You
Our firm has represented clients for more than 15 years in cases of divorce and family law in the state of New Jersey. Frank Tournour can represent you throughout your legal separation to make sure your interests are protected. Contact our law offices today by phone at 732-418-9777 or reach out online to make an appointment.