Alimony and Taxes

In some jurisdictions a monetary transfer to a former spouse for the purpose of meeting ordinary living needs after the dissolution of a long term marriage is known as alimony.  In Kentucky this transfer is known as spousal maintenance, and the establishment of this obligation triggers tax consequences for both parties.  As a matter of tax law, the payment of maintenance or alimony is deductible for the payor and income to the payee and it then becomes incumbent on the parties to consider the overall long term tax costs of the transaction in crafting a resolution to this issue as it arises.

In some instances, both parties benefit from waiving off maintenance altogether and opting for a transfer of another asset in lieu of maintenance or alimony; this presents the advantage of eliminating future modifications which can become necessary due to changed circumstances.  These modifications can occur as a result of health issues impacting incomes, the failure or unexpected success of a business,  or a catastrophic disaster occurring over a region, and when they occur, they can be devastating to the party that hasn't had the opportunity to plan for a major change in their obligation. Further, over the years I've noticed that a number of litigants have reported relief over the nebulous notion of finality - that there are no continued long term financial obligations to the former spouse beyond matters of routine debt or lingering child support.  The way I describe it to clients is that there is a value to finality in and of itself on an emotional basis - the elimination of the obligations of shared income means that the divorce truly is final.

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