Category: Tax


Are legal fees from a Pennsylvania divorce tax deductible?

Posted by HKHLaw – September 18, 2012

Whether or not a party can deduct legal fees paid by that party depends on federal tax law.  Legal fees paid for the production of taxable income, such as the legal fees paid by a dependent spouse to obtain an alimony award (because alimony is taxable to the recipient), are generally deductible.  However, that deduction may be limited or lost in its entirety because of the alternative minimum tax (AMT).

On the other hand, legal fees paid by the independent spouse to his or her own attorney for the negotiation or litigation of alimony when that spouse ends up paying alimony, are not deductible.  Moreover, legal fees paid by one spouse for the other spouse’s legal fees are also not deductible.  In that circumstance however tax planning is permitted by the IRS and a frequent methodology employed is to have the payor spouse pay the other spouse’s attorneys’ fees in the form of additional alimony.  The alimony is deductible to the payor and, while it is taxable to the payee, when the payee uses that alimony to pay his or her attorney, the fees are deductible by the payee.

Whenever one is dealing with issues of deductibility/taxability, one should always seek the advice of a qualified professional.

Taxability of Support Orders in Pennsylvania

Posted by HKHLaw – September 7, 2012

The tax treatment of support orders depends upon the type of support being paid.  Generally, child support orders are tax free to the recipient parent and non-deductible to the payor parent.  On the other hand, payments for the support of the other parent (which can be spousal support, alimony pendente lite (APL for short) and post-divorce alimony) are fully taxable to the recipient and fully deductible to the payor.  The tax treatment of payments to a spouse, particularly post-divorce alimony payments is a very complex area which deals not only with Pennsylvania support law but with federal income tax law.  One should always consult competent counsel for advice when considering the deductibility of any support payments.

However, Pennsylvania Support Guidelines do recognize one of the important provisions of the federal income tax code that permits payments which would otherwise be non-deductible child support to be deductible to the payor and taxable to the recipient when those payments are combined with support payments for the spouse (such as spousal support or APL) and those payments are not specifically “allocated” to either child support or spousal support.  While the amounts of child support and spousal support are determined independently under Pennsylvania Support Guidelines, the ultimate award is the total of those two amounts.  When that total is “unallocated” it is deemed to be family support under the Internal Revenue Code and therefore completely deductible to the payor and fully taxable to the recipient.  Pennsylvania Support Guidelines presume that such orders are unallocated and therefore fully deductible to the payor and fully taxable to the recipient.  If your marginal tax bracket approaches 35%, the ability to deduct otherwise non-deductible child support payments, which can easily be several thousands of dollars per month in higher income cases, can be quite important.  Again, this is a complex area of law and there are a variety of other tests and circumstances which must be considered in determining the ultimate tax treatment and readers are advised to obtain the advice of competent counsel.