I'm paying alimony of $300 per week, and child support of $200 per week. Can I deduct any of this?
Child support cannot be deducted, but the alimony is deductible to you and taxable to your ex-spouse provided certain conditions are met.

What are the "certain conditions"?
First, the payments must be in cash and to or on behalf of a spouse or former spouse.

Second, they must be pursuant to a court order, a judgment, or a written agreement.

Third, you and the spouse cannot be members of the same household (some exceptions apply).

Fourth, the payments must end if your spouse dies.

Fifth, the payments cannot be designated as notdeductible, and they cannot be designated as child support.

These are the basic conditions, and depending on your situation, some additional rules may apply. For example, the payments may be disallowed as a deduction if they are tied to certain contingencies concerning your children. Also, part of the alimony may be disallowed where a disproportionate amount is paid during the first two years of payments.

My alimony gets reduced when each of our two children finish high school. Can that be a problem?
Yes. In fact, that may prevent part or all of your alimony from being deductible. Check with your tax Advisor^® about this. If your agreement does not conform to IRS rules, you may need to revise it in order for your alimony deductions not to be subject to disallowance.

Assuming my alimony is deductible, what's the deduction worth to me?
That depends on your marginal tax bracket. If you are in the 28% federal and 2% state tax brackets, you would have paid tax of $90 (30%) on that $300. By deducting it, you pay no tax on it, saving you $90 in taxes. So the alimony payment really costs you only $210 ($300 minus $90) each week.

Now, what about the property transfers we are doing? We're each getting half of the other's 401(k). Won't we each pay a lot of tax on those transfers?
No. A special court order can be prepared which allows the money to be transferred from each of you to the other without it coming through your hands and without tax liability to either of you at the time of transfer. After the transfers are complete, if either of you removes money from the plans, you will pay taxes on it. But the transfers you make now to each other will be without tax consequences.

How about our stock and mutual funds? If we sell, we will pay capital gains tax, but the funds are in both names and we need to separate the shares?
A similar type of court order will allow you to make the transfers without incurring capital gains taxes at this time. After the transfers, if either of you sells at a net profit, you will pay capital gains tax at that time.

The house we shared (and where my ex-wife lives now) is going to be sold when the kids graduate high school, about eight years from now. Will there be a capital gains problem then?
The Taxpayer Relief Act of 1997 allows you to sell your principal residence free of capital gain tax on gain up to $250,000. There are rules requiring you to occupy the home for a certain period of time prior to sale. However, if there is a written agreement or court order or judgment granting your former spouse use of the home, then you will be given credit for living there while your spouse lives there. Consult your attorney and tax Advisor^® to make sure your divorce or separation documents comply with Internal Revenue Code section 121.