For the past 70 years, spouses ordered to pay alimony could take a tax deduction for their spousal support payments. Recipient spouses didn’t have to pay any taxes on the amount that they received. This all changed on Jan. 1 though. Alimony payers can no longer take tax reductions for their payments. Recipients have to now pay taxes on the support that they receive. Even still, there are ways that both parties can reduce their tax burdens.
Setting up a charitable trust
If your spouse has a particular cause that’s near and dear to their heart, then they may be receptive to having their alimony paid into an irrevocable charitable remainder trust (CRT).
This may be particularly appealing for an ex who is philanthropically inclined. If they need some of the alimony that you’re slated to pay to live on, then you may be able to set aside a portion of what’s due for the trust and receive the remainder using standard approaches.
One of the primary benefits to putting at least a portion of the alimony into a CRT is that reduces the amount of income that your ex will have to declare. The trust will still be required to pay a taxable income to the beneficiary for a certain amount of time if you pursue this option, though.
Retirement account transfers
A good option to pursue if the paying spouse has significant assets in a retirement account and is transferring some of that account’s pre-tax funds to your ex. They may end up requesting less alimony as a result as their payments wouldn’t be affected if you were to get hurt or die. Your tax burden will be like what it was before the law changed if you do this. Your ex will only have to pay a penalty if they make any withdrawals from that account.
You and your ex can reduce your tax burden by being selective with the different investment accounts that you each take on. Some may be taxed at higher rates or offer better dividends than others. You may be able to offer lump sum alimony in exchange for you retaining ownership of certain valuable assets as well.
An attorney can help you understand all aspects involved with a Florida divorce so that you minimize the financial impact that it has on you and your Fort Myers family.