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Alimony Can Have Tax Implications for Receiving Spouses

Posted on in Divorce Finances

Illinois divorce lawyersAlthough alimony is not awarded quite as often as it used to be, it is still a factor in some divorces. On one hand, alimony may balance out the financial struggle that a disadvantaged spouse faces after divorce. Yet, on the other, there are tax implications that could present a potential issue. Learn more about alimony and taxes with help from the following.

Taxes are Governed by the IRS

Some spouses believe they can mitigate the tax implications of alimony payments by speaking to the court. Unfortunately, this is not accurate. Taxes are governed by the Internal Revenue Service (IRS), not the courts. As such, spouses should discuss any concerns they have over the tax implications of alimony with their financial advisor, and their attorney.

Requirement to Report Alimony

As a receiver of alimony, you have to report the earnings to the IRS. This is generally done when you file your tax return. One must also understand that any failure to accurately report alimony money could result in a tax audit from the IRS. This can carry serious implications, including additional tax and/or criminal penalties.

Consider Alternative Options

Monthly alimony payments are not your only option. In fact, if you decide that the tax implications of monthly payments will be too great, you can speak to your attorney about pursuing a lump sum, which would be received by you once the divorce is complete. Generally, such a payment would not be considered a part of your income. Instead, it would be considered a part of your divorce settlement in the division of assets.

It is important that you consider this alternative option carefully before deciding to move forward. Receiving a lump sum can place you at risk for financial issues if you do not manage the money wisely. Again, a financial advisor can help guide you in determining how to budget, manage, and perhaps even invest your portion of the divorce settlement.

How Our DuPage County Divorce Lawyers Can Help

At Stock, Carlson & Asso. LLC, we understand that each situation is unique, and we will provide you with the personalized representation you deserve. We can work with you to decide which settlement option may be most appropriate for your situation. Whatever you decide, we will fight to ensure you get the divorce settlement you deserve. Learn more about how our DuPage County divorce lawyers can assist with your case. Call 630-665-2500 and schedule your consultation today.

Sources:

https://www.irs.gov/taxtopics/tc452.html

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