Last week we wrote a post about alimony and some modifications that are coming to the state of Minnesota. A couple of weeks before that, we talked about taxes and divorce. Today, we're going to talk about both topics and how they are related.
When alimony (or spousal maintenance) is involved in your post-divorce life, it is important to keep detailed records of all the alimony payments. Whether you are the paying spouse or the receiving spouse, the details of these transactions are vital. You want to log every critical piece of information about the payment:
- How much was the payment?
- When was it made?
- Was it mailed or delivered in person, and to what address was it sent?
- What bank was involved and what was the account number?
- What was the check number?
Keep track of this information for every payment that you make or receive. Also, if the paying spouse decides to pay with cash, it behooves both parties to create a paper receipt (signed by both parties) to prove that a payment occurred.
Now you may be asking yourself "what does this have to do with taxes?" Well, alimony and taxes are linked in a very important way. The paying spouse can actually use his or her payments to reduce their taxable income. Meanwhile, the receiving spouse has to include the alimony payments he or she receives as part of his or her income. The records you keep you will be vital in establishing these facts on your tax filing, in addition to giving you critical evidence in case your former spouse files legal action over the alimony.
Source: FindLaw, "Alimony Guidelines: What Records to Keep Regarding Your Alimony," Accessed June 7, 2016