The majority of divorcing couples understand the purpose of child support and spousal support. However, only few have heard of and are familiar with unallocated support. Unallocated support can benefit both parties and is an effective way to settle support issues in some divorce cases.
Unallocated Support Defined
An unallocated support payment combines child support and spousal support. It is a viable option when the spouse paying the support has a substantial income and the spouse receiving it has minimal to no income.
Currently, the Internal Revenue Service or IRS allows the spouse paying this type of support to treat the entire amount as spousal support. This allows their entire payment to be tax-deductible because spousal support, not child support is tax deductible. In addition, the IRS requires the spouse receiving unallocated support to pay income taxes on the entire amount they receive.
Since unallocated payments will give the payor the opportunity to save money on taxes and may allow the payee to receive a higher payment, unallocated support payments can benefit both parties.
How Unallocated Support Payments Are Set Up
Due to the fact that there are tax implications for unallocated support payments, they must be set up correctly. In the event they are not, both spouses will miss out on their benefits. If you believe unallocated support is right for your situation, it is in your best interest to work with a highly experienced divorce lawyer who is well-versed in unallocated support and tax laws.
Can Unallocated Support Payments Be Modified?
Just like child support and spousal support payments, unallocated support payments can be modified. If a spouse begins earning a higher salary or loses their job or another circumstance changes their financial situation, a lawyer can help them modify their unallocated support payments.
Unallocated Support Payments Will Not Be Available in 2019
It is important to note that in 2019, unallocated support payments will no longer be available in new divorce cases under the New Republican Tax Act. Divorcing couples will only have the option of individual spousal support and child support payments, not a combined payment of both. Also, alimony tax deductions will be eliminated.
Contact Our DuPage County Divorce Attorneys
If you are wondering whether unallocated support payments are a good option for your divorce case, we encourage you to contact our experienced DuPage County divorce attorneys. We will help you understand the difference between child support, spousal support, and unallocated support, evaluate your situation and let you whether unallocated support is the right choice. Call us today at 630-932-9100.
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