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Change in Taxation of Alimony

For orders entered before 2019, alimony was deductible for federal tax purposes to the individual paying alimony and includible in the gross income of the person receiving alimony. On the other hand, Child support was never tax deductible to the individual receiving or deductible to the individual paying. 

Here is how it works, For example, let’s say a Delaware Ex Husband and Father was paying $2000 per month in Delaware Child Support and $1000 per month for Delaware Alimony by court order. Provided the conditions were met $12,000 was deductible to the Delaware Ex Husband and Father for alimony for  federal and taxation and includible in the Delaware Ex Wife and Mother gross income. What is the effect of this? It shifts the tax burden to Wife who is taxed on it a lower percentage than Husband would and enables a Husband to pay more and Wife to receive more with no difference after taxes. For illustration purposes only let’s artificially say the Delaware Ex Husband Payor was taxed on this $12,000 at the federal rate of 20% and the  Delaware Ex- Wife recipient of alimony had a lower federal tax rate of 10%.   The Delaware Ex Husband gets back $2400 on his annual taxes ($12,000 X 20%=$2400) and Delaware Ex Wife pays $1200 on her annual taxes ($12,000 X10%= $1200).  Delaware Family Courts typically find that this enables the Delaware Ex Husband to pay more. Why?  Well if in the example above   the cost after tax savings to the Delaware Ex Husband Payor is not $12,000 but $9,600 due to the tax savings ($12,000-$2400 tax savings= $9,600). That means the Delaware Ex Husband has $2400 annually or $200 monthly to pay for Wife’s expenses.  It also means that The $12,000 paid to Wife in alimony since it is taxable to her is only worth $10,800 ($12,000 less $1200 tax on wife+ $9800) and her Wife’s need for alimony is greater, the Delaware   and utilize a program call Fin Plan to determine the tax effect. Their use of Fin Plan usually appears at the end or as an exhibit to a decision. 

Federal Taxation of Alimony changed  Starting for orders entered after December 31, 2018, Alimony is no longer be tax deductible for federal purposes for the individual who pays. Nor will it be includible for federal tax income purposes in the individual recipient. 

If you want to discuss this more call or e-mail and request an appointment from, Gary R. Spritz, Esquire at (302) 655-0900,  email a delaware divorce lawyer at: garyspritz@garyspritz.com or use the form below.

There was a dramatic change starting 2019 in how alimony is taxed that impacts Delaware Alimony.

Tax Code Changes Alimony Taxation and May Impact Your Delaware Divorce