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What Is a Support Order

There are three different kinds of Support Orders: “Child Support”, “Spousal Support” and “Family Support”.

 

Child Support Order
Child support is relatively obvious, it is an order for one parent to pay another parent for the care and needs of the parties children. Child support is most affected by the incomes of both parties and the amount of time spent with each parent. Child support is not tax deductible for the payor, or not taxable for the receiver.

 

Spousal Support Order
“Spousal Support”, or the more modern version, “Domestic Partner Support” is a payment from one spouse to another to assist the other parent in paying for their financial needs. Spousal support is much more technical in determining the amount of support one will receive than child support. Temporary spousal support orders such as those orders you would receive at the beginning of the divorce process but before trial, are mostly based on the relative incomes of the parties and the financial needs of the supported party. Long term spousal support, often called “Permanent Spousal Support” is determined only after a court takes into consideration all of the factors detailed under the family code 4320. Spousal Support is tax deductible for the payor, and is taxable income for the receiver. In other words, the person receiving spousal support needs to set a portion of that aside to pay for their taxes on that income at a later time.

 

Family Support Order
The last type of support is called “Family Support”. Family support is one lump amount that includes both child support and spousal support. Family support is tax-deductible by the pay or and considered taxable income to the receiving spouse. You may wonder why a judge would order this or why the parties would ever agree to this. The benefit of family support is that the entire amount is tax deductible for the payor, and taxable income for the receiver, even the portion included in the total as child support. You may be asking, why this is a benefit. The answer lies in a legal loophole in federal tax law. The benefit is the payment can be a larger amount of money because the payor gets a bigger break on his taxes because the payor gets to write off the entire amount at his/her higher tax rate, yet the receiver receives that larger amount than they would if they separated the two, and only pays taxes at their lower tax rate.

Let’s say for example the payor is in the 45% tax bracket, and let’s say the paying spouse is paying $2,700 monthly. Because the entire amount is tax deductible, they are only paying a total net amount of around $1,700 per month. On the other hand, assume the receiving spouse earns much less money and is only in a 15% tax bracket. In this case, the receiving spouse, after paying taxes, would pocket approximately $2,295. So, in this case, the paying spouse, after his income is tax affected, only pays about $1,700 per month when the receiving spouse, after their income is tax affected, receives almost $2,300 per month. I’m sure you can see how the outcome is a benefit to both parties, and of course, their children. And yes, this is 100% legal and one of the positive loopholes in our tax law.

If you question about child, spousal, or family support please call us at 714-730-0111.