Very few people enjoy thinking about their tax situation. That may be especially true for Colorado residents who are going through a divorce. Understanding how divorce and child support can impact one's tax obligations can make it far easier to plan for the future. It can also avoid a number of nasty surprises when tax season rolls around for the year after a divorce is made final.
Child support is different than spousal support in several very important ways. Alimony can be claimed as a tax deduction on the paying party's tax return, and is taxable to the recipient as income. Child support, on the other hand, is tax neutral.
The party who pays child support cannot deduct those expenses on his or her tax return. The party who receives the payments does not have to claim those funds as income. That can alter the tax obligations for both. While providing financial support for one's children is absolutely critical, the manner in which those funds exchange hands is up to the parties.
Understanding how support payments are handled in regard to taxation is important and allows Colorado spouses to negotiate a divorce agreement that is in line with their needs. In some cases, couples can negotiate a greater share of spousal support in exchange for a lesser child support obligation. Other spouses agree to a unique division of marital assets to accommodate reduced child support payments. Fortunately, each family can find a solution that fits their individual set of needs.
Source: madison.com, "Getting Divorced? Here Are 4 Ways Your Taxes Will Change", Wendy Connick, Sept. 24, 2017