Child support payments are not deductible by the payor parent, and are not included as income to the recipient parent (I.R.C. §71(c)). Spousal support, however, is deductible by the payor (I.R.C. §215). The custodial parent is presumed to be entitled to claim the dependency exemption unless the parties have otherwise agreed (I.R.C. §152(e)(1)).
The parties should be especially careful when stipulating to an award of "family support,"(Family Code §92) rather than specifying an amount payable for child support and a separate amount payable for spousal support. A recent ruling by the United States Tax Court holds that "family support" is not deductible as spousal support (Wells v. Commissioner (T.C. Memo 1998-2), I.R.C. §71(c)(2); contradicting Ambrose v. Commissioner, T.C. Memo 1996-128). A "family support" order may be analyzed to determine whether it constitutes spousal support. In most cases, "family support" is an "unallocated combination of child support and spousal support," and based upon Wells, supra, its deductibility will be disallowed. A "family support" order may be deductible as spousal support if it complies with the requirements of I.R.C. §71(b). One of the necessary elements of §71(b) that is often lacking in such support orders is the requirement that there must be no requirement to make payments after the death of recipient former spouse. Pursuant to Family Code §4337 the obligation of a payor to make pay spousal support terminates upon the death of either party or the remarriage of the supported person. Inasmuch as a child support obligation does not terminate upon the death of the recipient spouse, this element is usually lacking and therefore the deductibility will be disallowed. The Tax Court in Wells expressly held that §4337 does not apply to "family support" orders, and therefore, such payments will not be deductible unless the order provides for the termination of payments upon the death of the payee. Counsel should be consulted in all cases regarding support orders, but, in general, support orders should clearly spell out the amount payable for child support and a separate amount payable for spousal support in order to avoid losing the deduction for spousal support by the payor spouse. A payor under a "family support" order may have the order modified to specify separate amounts payable for spousal support and child support if there has been a change in circumstances warranting modification.
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Copyright © 1999 Roy A. Barry, all rights reserved.