Tax Implications of Spousal Support in Bergen County
Spousal support, which is most commonly called alimony in New Jersey, can be a key element of divorce for both the spouse who makes the payments and the spouse who receives them. It is also important, however, to consider the tax implications of spousal support in Bergen County and if any of them apply to your situation.
The trusted advice of skilled legal counsel can help you limit the tax consequences you experience regarding alimony payments. Look to an experienced spousal support lawyer at Moskowitz Law Group for the help you need.
Purpose of Alimony
Alimony consists of payments that one spouse pays to the other to help support them financially. The primary purpose of spousal support is to help the supported spouse maintain a standard of living after the divorce that is reasonably comparable to the standard of living that the parties enjoyed during the marriage. Importantly, New Jersey law says that neither spouse has a greater entitlement than the other to that standard of living after the divorce. This essentially means that if one spouse lacks the financial ability to enjoy the marital standard of living after the divorce, and the other spouse has the means to help them maintain something similar to that standard of living while still being able to support themselves, alimony may apply.
Alimony comes in the following forms:
- Pendente lite alimony, which is temporary alimony that is put in place during the divorce process until the divorce is finalized
- Limited duration alimony, which is the most common form of alimony in New Jersey and generally applies in divorce cases involving marriages that lasted fewer than 20 years
- Open durational alimony, which is reserved for marriages lasting 20 years or longer and does not have a specific end date
- Rehabilitative alimony, which is designed to support the recipient while they gain the skills and education necessary to achieve greater financial independence, often taking the form of contribution toward further education or job training
- Reimbursement alimony, which is intended to reimburse one spouse for contributing to the higher education of the other spouse where the spouses have yet to receive the full financial benefit of increased earnings from that education
A knowledgeable Bergen County lawyer can help you understand which type of alimony may apply to your case and its associated tax implications.
Spousal Support and Federal Tax Implications
Before 2019, alimony payments were treated as taxable income at the federal level for the spouse who received them. Likewise, they were considered tax-deductible for the spouse who paid them. This has changed considerably.
Under alimony agreements and judgments of divorce entered after the change in the law, the payor can no longer deduct their alimony payments on their tax returns. Likewise, the payee does not have to claim alimony payments as income and no longer pays federal taxes on this income.
If your alimony agreement or judgment of divorce was finalized before 2019, however, the old taxation system applies. This means the payor gets a tax break while the payee is taxed for the alimony payments they receive. An experienced attorney in Bergen County can help you understand which tax rules apply to your specific spousal support situation.
A spousal support modification can trigger a change in whether the former or current tax rules apply, and the modification specifically addresses the tax shift.
Spousal Support and State Tax Implications
The State of New Jersey alimony taxation laws generally adhere to the federal guidelines. There are, however, some considerations you should not forget. Most importantly, if you receive alimony, it is considered taxable income that must be included on your state tax returns, regardless of when the spousal support order or agreement was executed. Likewise, if you pay alimony, it is considered tax deductible and you can include it as a deduction on your tax returns.
An Experienced Bergen County Spousal Support Lawyer Can Explain Tax Implications
The tax implications of spousal support in Bergen County are considerable and should not be ignored when negotiating alimony terms. The knowledgeable attorneys at Moskowitz Law Group have earned a solid reputation for our fierce advocacy and support for our valued clients. Reach out to learn more by contacting us today.
