The Background Basics of Support
The term “support” in the context of this chapter refers to the money paid from one spouse to the other spouse, after they have separated, to help meet child-related and spouse-related living expenses. Support, whether child support or spousal support, should always be paid pursuant to court order, so that the recipient spouse can go to court to enforce the support order if the other spouse fails to make payments. The income of both spouses is considered in ordering support, commonly referred to as the “need” and the “ability to pay.”
The cost of medical insurance for the children is an important consideration in making child support orders. Typically, the parent able to include the children on his or her employer-provided plan is ordered to maintain this coverage, and this cost is considered when ordering other child-related support. The least costly plan is usually selected when both parents have approximately equal plans.
Income tax consequences must be taken into account when setting support either by agreement or court decision. Generally, payments of child support cannot be deducted by the payor and are not taxable income to the recipient. But, look carefully at how the child exemptions and deductions are awarded for income tax purposes. Spousal support (often referred to as alimony) payments are income tax deductions for the payor and taxable income to the recipient.
Usually, and especially if one spouse has significantly higher taxable income than the other, you both will benefit by working together to minimize the income taxes paid. By planning carefully, the lower-income recipient may be able to enjoy higher net (after tax) support at the same time the higher-income payor pays more but keeps a higher net portion of his or her income by deducting a greater amount for income tax purposes. For example, and within well-defined limits, if you meet certain detailed requirement in your written agreement and court order the Internal Revenue Service will allow you to alter the usual rules as to whether designated support payments are deductible or not deductible.
When appropriate, the use of specified assets or the obligation to pay certain debts can be assigned “in lieu of” or “as and for family” support. For example, one parent may be given the exclusive right to live in the former family residence with the children for a specified period of time. As another example, one parent may be ordered to pay certain debts, again, for a specified period of time. Orders such as these are most common during the period immediately after separation until the trial, or settlement, when, with all the facts are “on the table” so to speak, a comprehensive plan applying the law to the facts is ordered.