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Divorce and Finances

Understand the differences between alimony and child support

Divorce may end your marriage, but it doesn't always end the financial ties to each other.

After a divorce, it's common for one spouse to make payments to the other as part of the divorce agreement. These payments can be alimony, child support or a mix of both. It's important to understand the difference between the two because this can help you put together an agreement that leaves both of you in better shape financially.

What is alimony?

Alimony, also known as spousal support, consists of payments that one spouse makes to the other person after their divorce is final to maintain the same standard of living after the divorce. A divorce agreement usually involves alimony when one person makes more than the other; the higher earning spouse pays out alimony. As of 2019, the person paying alimony is typically unable to claim the alimony as a tax deduction, while the person receiving alimony generally is not required to report the payments as taxable income.

Depending on your individual situation, spousal support may be awarded in a variety of ways. While state laws regarding spousal support will vary depending on the state you live in, the following are some basic options. Remember, it's important to always consult with your divorce attorney or other legal counsel before making any decisions.

Temporary alimony

As the name implies, this option is meant to provide temporary financial support. It's typically awarded during the time when a couple is separated and has not yet finalized their divorce.

Rehabilitative alimony

Much like temporary alimony, rehabilitative support is generally provided for a limited time only. It's meant to offer financial assistance to a spouse who may require specific job training and/or education so that he or she can become financially independent.

Lump-sum support

This is a one-time, fixed payment that is generally equal to the total of future monthly payments (whatever the court has decided). Unlike temporary or rehabilitative support, a lump-sum payment may be awarded regardless of any financial need, and is often used as a type of settlement agreement.

Permanent alimony

This type of support is meant to continue until the recipient remarries, or if either the payor or payee dies. Permanent alimony is no longer awarded in most states.

Reimbursement alimony

In some cases, one spouse feels entitled to reimbursement for expenses incurred during the marriage for things such as higher education. Reimbursement alimony is considered a type of payback for the spouse who had supported the other during this time.

It's important to understand the types of spousal support available after a divorce and to evaluate your situation and which may be the best fit for your personal and financial situation.

What is child support?

Considered separately, child support is payment to help raise young children. The custodial parent who is set to spend more time with the kids generally receives child support because they will spend more money on childcare. These payments typically end when the children reach a certain age, usually 18 or 21. Like alimony, there is no tax deduction for child support. The person receiving child support also does not need to pay income tax for receiving this money.

Alimony and child support are common components of preparing to financially separate from a spouse. It is important to understand what each is and how they differ. Regardless of your situation, we recommend that you seek the advice of your personal financial advisor or lawyer. Only they can provide specific advice on what solutions might best suit your needs.

 

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