Can tax be deducted from maintenance payments to an ex?
Q: I am at the beginning of divorce proceedings with my wife, and even though custody has not been decided yet, she has made requests regarding maintenance for her and our two children. Is any maintenance I pay tax-deductible?
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A: There are two types of maintenance payments, voluntary maintenance payments and those which are made by the courts and are legally enforceable. Voluntary maintenance payments are agreed between spouses, without any legal agreement in place, according to Eileen Devereux, commercial director at Taxback.com.
These payments are ignored for income tax purposes, and no tax relief is available.
Legally enforceable maintenance payments are payments to a former spouse agreed under a court order or deed of separation.
This is tax-deductible when it is made towards a former spouse, and you as the spouse potentially paying maintenance can have your tax band adjusted to take account of the amount being paid.
However, you cannot claim tax relief on any amount of payment made for the benefit of your children.
If you are required to pay periodically towards both, tax relief will only be available on the portion of the payment to your wife, where it is agreed by law, Ms Devereux said.
It might be worth letting your wife know that she will have to pay tax on any maintenance payments to her - but not to the children.
However, she could benefit tax-wise as the parent to whom responsibility for the care of the children falls, as she should be able to change her tax status with Revenue to that of a single parent.
As a single parent, the standard rate cut-off point (the point at which income is taxed at the higher tax rate) is increased from €35,300 to €39,300, with entitlements also available for a single person child carer credit, currently worth €1,650.
This is not available in the year of separation. Where one partner pays the entire mortgage and the mortgage is in joint names, it is possible for that spouse to claim half of the mortgage repayments as a maintenance payment.
Q: I am 26, and working on a contract basis as a software engineer and making a decent wage. Most of my friends are obsessed with saving for a deposit for a house, but I have no interest in property. I am planning to work abroad for a while in my 30s. I am interested in saving some money for the future. Deposit rates are woeful, but I still have some money in the bank. I am also thinking about a pension, or am I jumping the gun, given my age?
A: There is definite wisdom in starting a pension in your 20s. Whatever small amount you start to save now will be invested over a long period of time, and you will benefit hugely from the effect of compound growth on your savings, according to the chief executive of the Irish Association of Pension Funds, Jerry Moriarty.
Many people do not realise the monetary benefits that pension saving in your 20s and early 30s can bring.
For example, if a person only saved for their pension for 10 years from 26 to 36, and then left the fund to grow with no additional contribution to age 65, the benefit would be greater at 65 than if they had saved for 30 years from 35 to 65. Bank deposit rates are indeed negligible at the moment, but it's always prudent to have some readily accessible savings.
The beauty of pension saving is that you can avail of a tax relief on your pension funds at your tax rate, so it is a financially sound move.
If you do move away, just remember to keep your pension fund details so you can locate them when you return.
Q: I have dental cover on my corporate health insurance plan but it appears to be very limited. Is there better cover from one of the health insurers or do I need separate cover?
A: Unfortunately, there is no health insurance plan that includes comprehensive dental cover for major treatments such as root canal work. For this cover, you will need a separate policy either in the form of a dental plan from the likes of DeCare Dental or a cash plan from HSF Health Plan, according to Dermot Goode of TotalHealthCover.ie.
On a typical DeCare scheme, check-ups are fully covered immediately on joining, with routine fillings and extractions covered after three months. Eligible major treatments are covered after 12 months. On a typical HSF cash plan, once you are on the plan for three months or more, you can claim your dental refund.
Legally enforceable maintenance payments are payments to a former spouse; are tax-deductible; and you can have your tax band adjusted.
There is no health insurance plan that includes comprehensive dental cover for major treatments like root canal work, so you will need a separate policy.