Tax Brackets: When Is A New York State Spousal Support Dollar Not Worth A Dollar?
The state of New York has a formula for the quick calculation of temporary maintenance during a divorce proceeding, but that doesn’t mean that final support is easy to figure. Spousal support is affected by a host of factors other than those found on the New York Statement of Net Worth, and one issue that is often overlooked is the impact of taxes.
No matter what state you live in, alimony is taxable income. This means the recipient has to declare it as income and the payor can list it as a deduction if deductions are itemized on tax returns. Alimony can significantly change each spouse’s tax situation and divorce attorneys should consider the tax implications of a settlement on a client.
One tax situation that is easy to miss is the impact of tax brackets. The recipient could be bumped into a higher bracket, thus paying more taxes than expected. Alternatively the payor might have enough of a deduction to drop to a lower bracket. A payor in a high tax bracket will save more in taxes than the recipient spends in taxes, meaning each dollar in payment is not really equal to a dollar in receipt.
Attorneys can make a first approximation of a fair spousal support settlement, but rather than blindly offering this value it could be worth trading alimony dollars for other dollars to create a more advantageous tax situation. Taxable alimony might be traded dollar-for-dollar for untaxable child support. A spouse might be willing to take a lower support settlement in exchange for a more generous property agreement.
There are so many ways to balance the tax implications of a settlement that it is difficult to do on paper, which is why many attorneys turn to New York family law software like EzSupport-NY. Prepare multiple support scenarios and examine the real cost of each so you can find the best arrangement for your client.
EzSupport-NY does more than simplify the process of completing the NY net worth statement. The analysis tools help you make smarter decisions, negotiate from a stronger position, and create a stronger and more comprehensive case to support your offer.
EzSupport-NY is just one of the law practice management software products you can find here at Easy Soft. Our tools don’t just complete paperwork; they simplify and optimize your legal practice. Contact us to find out more about how our software helps you be a better attorney.