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Maintenance Payments are Tax Deductible Like Alimony
By maintenance, I assume he means certain expenses to maintain the custodial household.
Richards: Divorceís stress harms finances

By Archie Richards/ Money Matters
Monday, December 26, 2005

Many financial problems accompany a divorce. But stress is high, too. The stress leads to poor financial decisions, which worsen the financial situation, which worsens the stress. Itís a downward spiral.

    Take on the stress first by obtaining counseling. You donít have to be off your rocker. You just need a temporary friend to help you think straight.

   Here are a couple of common emotional matters relating to divorce:

  • Splitting up makes everyone miserable. Some people want to make things especially hard for their former spouses. But revenge makes a bad situation worse -- especially on the children. Custody fights hurt the children most.  
  • A divorced personís social life changes. Married people are most comfortable with married friends. Single people want single friends. Divorced persons have to find new friends at the very time they need friends most.
        OK, now for some of the financial issues:
  • Maintenance payments are deductible by the paying spouse and taxable to the payee spouse.
  • Child support payments are opposite: Theyíre not deductible by the payer, but theyíre tax-free to the payee.
  • One spouse might have minimized a career to raise children. The settlement should provide extra money to the homemaking spouse to pay for additional career training.
  • Letís say the wife relies on the ex-husband for child support, retirement benefits, alimony or college education. But if the husband dies, the wife is left holding the bag. She should acquire life insurance to protect against her exís death. Since the husbandís liabilities probably wonít extend indefinitely, inexpensive term life insurance should be sufficient.
  • The spouse who has custody of the children is inclined to keep the house. But be sure to consider the long-term effects. Letís say, for example, that the two parties split things equally: The wife keeps the house, and the husband keeps the retirement accounts, both valued at $400,000.
    Whoops. The house is a cost burden and cannot easily be sold. But the retirement accounts are growing assets that can be sold quickly. The 50-50 split wasnít equal at all. Retaining the house may be too much for the custodial parent to handle. Selling it and splitting the proceeds would work better.
        Divorce is complicated and stressful. Counseling helps you to take on the financial issues rationally. But consider the financial decisions in terms of their long-term consequences.