It sounds too good to be true, right? To some extent, it is. Attorney fees and court costs incurred for a divorce are not deductible, even if they are incurred to obtain a financial settlement or to preserve property. However, fees incurred to obtain taxable alimony or for tax advice are deductible. This includes fees paid to CPA’s or other financial experts to help in determining the tax effects of equitable distribution or the tax implications of alimony. In many divorces, a financial expert is brought in to analyze the tax effects of the couple’s distribution of assets or to determine the actual net cost / net benefit to each party as it relates to alimony. Since alimony is taxable to the recipient and deductible by the payer, it is important that both parties understand the tax implications and plan accordingly.
Fees for defending against a request for alimony are not deductible. Fees paid for a spouse are not deductible unless they qualify as alimony. It is also important to note that not all alimony is taxable. Nontaxable spousal support can occur in negotiated settlements. Make sure to ask your attorney and CPA for a breakdown of expenses so that you know what portion of their fees would be deductible. This deduction is reported on Schedule A, Line 23 for Other Expenses. If you do not itemize and take the standard deduction instead, you will not be able to benefit from this deduction.