Is there any way of structuring support payments to optimize tax consequences?
A. Definitely. While the amount of tax-free child support, in most cases, is calculated by using the Guidelines, alimony is not. Alimony is typically a negotiable issue. If the payor spouse is in a significantly higher tax bracket than the receiving spouse, the alimony portion of any support payment will be of significant benefit to the payor spouse and to the recipient spouse, inasmuch as the recipient spouse would be taxed at a much lower rate. Optimizing the tax consequences of support is one way to improve overall post-divorce divided family finances, which is often neglected. The manner in which dependency deductions are taken, use of the Head of Household filing status, the right mix of alimony versus child support payments are all considerations to take into account to maximize tax savings. Both parties should agree to do this with the assistance of a tax accountant, because cash maximization opportunities could be quite substantial.
