Tax Implications of Receiving (and Paying) Postseparation Support and Alimony

In North Carolina, there are no mathematical formulas for determining awards of postseparation support and alimony. The trial courts have broad discretion in determining the amount and duration of postseparation support and alimony awards, and the results can vary greatly from case to case.

One factor that may be considered in determining postseparation support and alimony awards is the tax consequences that may result from those awards. Awards of postseparation support and alimony are considered taxable income to the recipient spouse, and tax-deductible by the paying spouse. Consequently, if a dependent spouse needs $1,000 per month of net postseparation support or alimony and falls into an income tax bracket of 33%, the dependent spouse would require a support payment from the supporting spouse of $1,500 per month in order to receive $1,000 per month of after-tax income. On the other hand, a supporting spouse may have more income available to pay spousal support after considering the deduction of alimony from his/her gross income.

In order for postseparation support and alimony to be taxable to the payee and tax-deductible by the payor, the spousal support must be paid pursuant to a written agreement or court order. Postseparation support and alimony paid pursuant to a verbal or informal agreement is not taxable or deductible for income tax purposes. Additionally, postseparation support and alimony are not taxable to the dependent spouse or deductible by the supporting spouse if the spouses file joint income tax returns.

In special circumstances, such as if a party is using nontaxable income to pay postseparation support or alimony, it may be preferable for the spousal support payment to be designated nontaxable and nondeductible, and such preference can be made by written agreement of the parties or specified in a court order.

This article is for information purposes only and is not to be considered or substituted as legal advice. The information in this article is based on North Carolina state laws in effect at the time of posting.