Nolo's Essential Guide to Divorce - Emily Doskow [133]
When you negotiate your spousal support agreement, it's important to make sure that you don't tie the termination of spousal support to anything related to your kids-for example, the time they leave home or when they finish college. If you do, the IRS might consider the payments child support rather than spousal support and child support payments aren't tax deductible.
If you're making payments to a third party instead of to your spouse, but you've agreed (in your settlement agreement) that the payments constitute spousal support, for tax purposes those payments are treated as if they were paid to the recipient. In other words, you can deduct them (at least in part) as support payments. Certain payments are not fully deductible, though, including payments related to a jointly owned home. If you and your spouse continue to own the home together and you pay all the expenses, you are allowed to deduct only half of the mortgage payment as spousal support. But you can take half of the mortgage interest deduction as well.
The real estate taxes and homeowners' insurance are even more complicated, and deductibility depends on how you hold title to the property. Check IRS Publication 504, Divorced or Separated Individuals, for the lowdown on third-party payments as spousal support.
Keeping Health Insurance in Force
Making sure that health insurance continues after divorce is a major issue for most divorcing people. The vast majority of Americans get their health care through employment, and many people are insured through their spouse's employment benefits. Because of this, there's a federal law, called COBRA, that requires insurers and employers to provide ongoing medical insurance to divorcing spouses for a period of time.
Same-sex couples may not get COBRA benefits. COBRA is a federal law, and the federal government doesn't recognize same-sex relationships, even in the states that offer marriage or marriage-like relationships. Some employers and insurers may choose to allow former same-sex partners to retain coverage under COBRA, but if they don't, there's not much you can do about it.
Staying Insured Through Your Former Spouse With COBRA
No, it's not a scary snake. In fact, the Consolidated Omnibus Budget Reconciliation Act (COBRA for short) is the opposite of frightening-it is a critical safety net for employees who lose their jobs and for spouses who are divorcing their source of medical insurance.
All private employers with 20 or more employees are covered by COBRA. Most states have a similar law for employers with fewer than 20 employees. Employees of public entities are not covered by COBRA, but some states have laws that parallel COBRA and may cover public employees. If you're not eligible for COBRA, check with the human resources department of your spouse's employer to find out whether another type of continuation coverage is available.
COBRA provides that when an employee insured by a group policy gets divorced, the employee's former spouse can remain covered for up to three years on the group insurance policy. The nonemployee spouse must pay for the benefits, but can be charged only as much as the employer is paying for them plus a 2% administrative fee. After three years, the nonemployee spouse is entitled to convert the group insurance to a private policy with equivalent benefits without the insurance company requiring medical tests or records, but most people don't because it's just too expensive. Generally, only someone who is otherwise uninsurable would take advantage of that provision.
If you're the spouse receiving coverage under COBRA, you need to know when the 36-month period begins. Most insurance plans start the period when the final divorce order is issued by the court. Because many months go by between when you separate and when your divorce is final, you may get a significant amount of coverage before the clock even begins ticking on the COBRA limit. Check the terms of the plan to be sure. You are entitled to a copy of the plan upon request. The human resources folks at your spouse's employer