If you are thinking about divorce, have been served with papers, or need to modify your spousal or child support agreement, Merel Family Law is here to help with these and a full range of family law needs. Our Chicago, IL spousal support lawyer is part of a team of 20 lawyers who have a collective 220 years of experience successfully helping clients resolve their family law legal issues.
How Alimony Is Treated For Tax Purposes
Alimony, or spousal support, is a payment from one spouse to another following a divorce or legal separation. How these payments are taxed depends on when the divorce was finalized. For agreements executed before December 31, 2018, the paying spouse could deduct alimony from their taxable income, and the receiving spouse had to report it as income. For divorces finalized after that date, federal tax law changed: alimony is no longer deductible by the payer, and the recipient does not count it as taxable income.
This distinction is important for both budgeting and financial planning. While federal tax rules changed, some states may have their own rules for how alimony is treated. In Illinois and Michigan, alimony generally follows federal tax treatment, meaning post-2018 agreements are treated as non-taxable income to the recipient and not deductible for the payer.
Planning Payments And Reporting Income
It is important for both parties to accurately report alimony payments to avoid any IRS or state issues. Keep clear records of each payment, including the date, amount, and method of transfer. This documentation can help in case of disputes or if a modification is requested later.
When calculating how much to pay or receive, consider the tax impact of the payments. Even though post-2018 alimony is not deductible, it is still a financial obligation that affects budgeting and cash flow. Receiving spouses should account for this as income for planning purposes, while paying spouses should plan their finances without the deduction previously available.
Divorce itself is overwhelming and stressful and can become more so when you are unsure of what your financial situation is going to be when it is finally over. Understanding what to expect and the language that is used during legal proceedings, such as the difference between spousal support, alimony, and child support. Once a divorce is finalized life circumstances may change and when this happens, you or your ex may need to modify your support agreement.
State Considerations And Modifications
In both Illinois and Michigan, courts have the authority to modify alimony if circumstances change significantly. This can include changes in income, employment, or financial needs. Knowing how these modifications affect taxes is part of planning for both the paying and receiving spouse. Working with a lawyer helps clarify what can be modified and how to adjust payments while staying compliant with tax laws.
Support Through Every Step
At Merel Family Law, we help clients understand their financial obligations and rights related to alimony, including how payments are treated for tax purposes. Our team assists in drafting, modifying, and enforcing spousal support agreements while keeping clients informed about their legal and financial responsibilities.
Merel Family Law has been helping clients with a broad range of family law needs since 2009. If you need help with spousal support or other family law matters, reach out to us today or whenever you are ready to talk to find out how we can help.
