We have made it to the end of this four part blog series on why guys hate to pay alimony. We have explored the tax deductibility of alimony, the tax neutrality of child support, how paying alimony reduces child support and how paying on the mortgage(s) on the family home can (1) increase deductibility, but (2) create an overwhelming financial obligation.
There is one more major issue to discuss within this overall topic, which is the effect the distribution of assets may have on your overall burden in a divorce case.
The distribution of assets in a divorce case is handled through a concept called a monetary award. It works like this. If you are trying to equalize the assets of the marriage, and husband has $400,000 of marital assets, and wife has $100,000 of marital assets, they total $500,000. Each will end up with $250,000 in assets, so husband will have to transfer $150,000 in assets to wife.
This transfer itself is not a taxable event under Federal law. It can be made in lump sum, or it can be broken down into payments. Sometimes, parties will try to agree to monthly payments for a monetary award so that it looks like alimony but is neither taxable to the recipient nor deductible to the one paying it. The IRS tends to catch onto this and will re-characterize it to get their money, so you need an experienced divorce attorney, as well as a trusted tax advisor, who can craft a solution to minimize adverse tax effects.
If you are not a numbers person, then this has completely overwhelmed you, right? In that care, get to an experienced divorce attorney now, and we can explain it to you even more simply.
One important lesson you can take away from this series is to suspend the emotional aspects of alimony and calculate it based on the dollars and cents.
A second important lesson you should take away from this series is the importance of finding an experienced divorce attorney to guide you through this process and help you find the best solution that you can financially afford, both for your family and yourself.
One final thought. No one ever calculates the cost of emotions in divorce upon the finances. I will tell you this. The longer you are controlled by the emotions within divorce, the more you will likely pay at the end of the process.