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Alimony and Tax Implications

In Georgia, alimony can be awarded in accordance with the needs of one party and the ability of the other party to pay. O.C.G.A. § 19-6-1(c). In determining the amount of alimony, if any, to be awarded, the Judge must consider the standard of living established during the marriage; the duration of the marriage; the age and the physical and emotional condition of both parties; the financial resources of each party; the time necessary for either party to acquire sufficient education or training to enable him to find appropriate employment (where applicable); the contribution of each party to the marriage, including, but not limited to, services rendered in homemaking, child care, education, and career building of the other party; the condition of the parties, including the separate estate, earning capacity, and fixed liabilities of the parties; and any other relevant factors. O.C.G.A. § 19-6-5(a)(1-8). In addition to these factors, the parties themselves, along with their attorneys must consider the tax implications of any alimony award.

In general, alimony is treated as income to the recipient and must accordingly be included on the recipient's tax returns. Conversely, alimony is treated as an income deduction to the payor. This can make a huge difference on both sides. An example recently played out in the divorce of former Red Hot Chili Peppers guitarist John Frusciante. Ex-Guitarist Has to Give It Away, Give It Away…But Not What Estranged Wife Wanted, by TMZ Staff,, October 19, 2015. In that case, Frusciante had been paying his estranged wife $20K/month in temporary alimony. His wife was receiving this amount tax free, which means that Frusciante was paying her $20K and also covering around $20K in taxes on that amount. Nonetheless, Nicole didn't think that amount was enough given his substantial assets, so she asked for $75K/month tax free, which would have put Frusciante on the hook for nearly $150K including the taxes. Luckily for him, the Judge ordered him to pay $53K/month, but ordered her to pay the taxes on that amount. Though the original alimony obligation increased, it is not as substantial as Nicole wanted, and a big reason is the taxes.

As this case shows, taxes can cause a huge swing in a divorce case. In any settlement agreement, make sure payment of taxes is plainly spelled out so both parties have a clear picture of their financial obligations.


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