What is Unallocated Child Support?
Child support and spousal maintenance are two of many considerations in an Illinois divorce, and the financial obligations included in a final decree will vary based upon the unique circumstances of the parties involved. When a divorcing couple can agree to certain support issues, there are tax benefits that the couple can take advantage of by structuring payments in a certain way. An arrangement termed “unallocated” child support is attractive to both parties. Speak with an Illinois divorce attorney with experience in tax matters to see if it is an option for you.
Default Rules on Spousal and Child Support
Spousal support, commonly termed alimony, is paid by the spouse in a higher income bracket to the individual with a lower income; the intent behind spousal support is to ensure that person enjoys a similar lifestyle after the divorce as compared to when the couple shared a household. Under federal law, the payor spouse can deduct alimony payments when filing individual income tax returns. However, child support falls under a different set of tax laws and is not deductible from the payor parent’s income taxes.
Structuring an Unallocated Support Arrangement
When structured properly, an unallocated support arrangement allows the parties to combine spousal and child support into one payment—thereby enabling the payor spouse to deduct the amount from his or her taxes; at the same time, the recipient spouse must pay taxes on the support amount.
Shifting the combined support payments means that the money is taxed at a lower rate compared to treating alimony and child support separately. The payor spouse may end up paying more in an unallocated support arrangement, but that amount is actually less when the deduction is applied. Likewise, the recipient spouse may end up paying more in taxes, which amount is less than what he or she would be by accepting spousal and child support separately.
Under Illinois law, unallocated support is only available when the parties can agree to the arrangement. Still, reaching a compromise is usually possible because of the advantages to both spouses.
Retaining an Experienced Illinois Divorce Lawyer is Key
Agreement is essential when taking advantage of the tax benefits of unallocated child support under Illinois law, but divorcing couples often find it easier to reach an accord when they can both gain from such an arrangement. Still, it is critical to consult with a skilled attorney who understands how unallocated child support works and can include relevant language in relevant court orders and other documents.
The skilled DuPage County divorce attorneys at Davi Law Group, LLC have helped many clients with a wide range of tax-related matters and can answer your questions about unallocated child support. For more information, please contact our office to schedule a consultation.