Divorce and your business: answers to common questions about its impact.

• Author: Cathy C. Hunt
• Position: Law Journal 2014

I have to pay alimony to him?

Women are the breadwinners in more and more families today. Because of their many obligations and the imbalance of power that comes with being the primary wage earner, some husbands fall to the wayside. For example, Kim became a partner in a law firm while her husband pursued a career as a developer. His projects never quite came through or generated much profit. When Kim and her husband separated, she was indignant that she had to pay him alimony when she had worked so hard for her position in life and viewed his career as little more than a hobby. Men are more accustomed to the idea of paying alimony. In my experience, it is a bitter pill for women to swallow, but it is becoming more common.

What are the tax implications of alimony and child support?

Alimony is based on the accustomed standard of living during a marriage. It is often calculated from 24 months of bank and credit-card statements. The financially dependent spouse's income is compared with his or her monthly expenses. Any shortfall is made up with alimony to the extent that the financially supporting spouse has the ability to pay. Alimony is taxable to the recipient and deductible to the payor. If the dependent spouse has a shortfall of $3,000 per month, that amount has to be "grossed up" for taxes so that the net is $3,000. For the payor spouse, the amount paid is an above-the-line deduction on his or her taxes. If he or she pays $75,000 per year in alimony, that amount is not subject to fees or state income tax. While the annualized deduction may be beneficial, the grossed-up number often compromises monthly cash flow, at least during the first year, before the deduction is realized. In some cases, parties agree that support will not be taxable to the recipient or deductible by the payor. This scenario is sometimes referred to as family support, and it makes more sense when the same amount of money now must support two households. Child support is neither deductible to the payor nor taxable to the recipient.

How is a business owner's income calculated for alimony or child support?

The true monthly take-home income of a business owner has to be calculated to exclude phantom income. That appears when income from a partnership, S Corp or limited liability company flows to a personal tax return, making a business owner's income appear to be more than he really receives. In a recent case, a member of an LLC was being sued by his wife for alimony...