Many people do not know that alimony in the State of New Jersey is a taxable event for both parties. The spouse who is receiving the alimony must claim it as income on his/her tax return and pay taxes on it. It contrast, the spouse who has paid the alimony is entitled to write those funds off on their taxes which can significantly impact either or both parties to the transaction. In contrast, child support is not a taxable event.
While the aforementioned information is the norm in the State of New Jersey, many clients do not understand that in the process of working out a settlement in a divorce, the parties are free to make alternate agreements. Therefore, if you are a spouse who may be entitled to alimony, it may be in your interest to discuss with your attorney the possibility of receiving alimony without having to pay taxes. In addition, you may be able to do some creative thinking and arrange the settlement so that you receive the best possible financial outcome based on the length of time you are awarded alimony, the age of your children, and the support you may be expecting in the future.
Many times people get caught up in what the norm is, or what the law may say, however, as stated above, the parties are free to agree to whatever provisions they feel are fair under the circumstances. Therefore, I feel it is always the best approach to use some creative thinking when discussing the payment of alimony and child support with my clients.
