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The Real Cost of a Divorce

By Carla Fried - 2013-11-25T13:43:42Z

Photograph by Baldomero Fernandez/Gallery Stock

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Avoid Financial Traps

Alimony is taxable income to the recipient and a deductible cost to the payer. In 2011 almost 600,000 federal tax returns reported paying an aggregate $10.7 billion in alimony. (Child support payments aren’t taxable to the recipient or deductible to the payer, so they aren’t tracked by the IRS.) Any person receiving either form of support needs a term life insurance policy on the life of the ex making the payments. If you’re getting $30,000 a year for 15 years, the annual premium for a $450,000 15-year guaranteed level term policy might run about $400 for a 40-year-old male in good health. Landers recommends having the policy in place before the divorce is finalized. “Once you’re done negotiating you might have trouble getting your ex to agree to the medical exam,” he says.