Minnesota Divorce and Family Law

Taxable Alimony, Nontaxable Child Support

The tax consequences of child support and alimony (spousal maintenance) are different.  Child support has no tax consequences, which is to say that child support is not taxable to the recipient, and not deductible from the income of the payor.  Typically, however, spousal maintenance is taxable to the recipient, and deductible from the taxable income of the payor. 

If a court order provides for one party to pay child support of $1,500 per month, and maintenance of $750 per month, on paper that combines to be $2,250.  Assume that one's combined state and federal taxes are at a rate of 33% of total income.  Since the payor will save approximately $250 on taxes (due to deducting the $750 from taxable income) and the receiver will incur approximately $250 in taxes (due to including the $750 in taxable income), the net amount of the $2,250 in combined payments is closer to $2,000.

If the court order instead provides for the party to pay child support of $750 per month, and maintenance of $1,500 per month, on paper that combines to be the same $2,250.  But the net amount is closer to $1,750, due to the approximately $500 in tax on the $1,500 in maintenance.

Moreover, if the party paying the support and maintenance is in a higher tax bracket than the party receiving the payments, the parties can mutually enjoy a net benefit.  Assume that the payor is in a tax bracket that results in a 33% tax liability, and the receiver is in a tax bracket that results in a $20% tax liability.  In the first example above, if the payor saves $250 on tax, the net effect to the payor is a combined expense of $2,000.  At the same time, the receiver may incur tax of only $150, so that the net effect to the receiver is a combined receipt of $2,100.  Together, the parties save $100 per month in taxes.

The net benefit increases with the second example ($750 child support, $1,500 maintenance).  If the payor saves $500 on taxes, the net expense is $1,750.  But if the receiver incurs tax of only $300, the net receipt is $1,950.  Together, the parties save $200 per month in taxes. 

Family Law Prologue

Greetings from St. Paul, Minnesota. Having returned to my office after a week away, this is my opportunity not only to dive back into working on divorce and family law cases, but also to dive into the world of blogging.

As a family law attorney, I spend a great deal of my time answering people's questions. That is an obvious and important part of rendering legal advice to a client in the midst of a divorce or child custody dispute, or arguing a case in family court. Other attorneys will often post questions on listserves that have recently popped up on the internet, and friends and family members will often pick my brain about family law issues that they have encountered, or just out of plain curiosity. This blog is meant to serve as a place to post questions and answers on important family law issues.

It is my hope that this blog will serve as a helpful resource on the subject of Minnesota divorce and family law. Please feel free to post a question (with due regard for the disclaimer on the sidebar) by clicking on the comments link below.