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Johnny Depp divorce highlights tax issues

When Kentucky couples get divorced, they could face some of the same tax issues illustrated by the split between actors Johnny Depp and Amber Heard. The divorce settlement for the couple reportedly required Depp to pay $7 million to his ex-wife. Media outlets, however, have disclosed that he sent the money directly to charities favored by Heard instead of directly to her.

If the direct donations did occur, then Depp could qualify for tax deductions available for giving to nonprofits. As a high-income person, the deductions could shave up to $3.5 million from his tax bill. The terms of the divorce decree, which has been officially certified, could impact the tax consequences for both Depp and Heard. His cash payment to a third party instead of his ex-wife might be considered alimony. The receipt of alimony by Heard could add to her taxable income. If the decree specifically states that the charitable donations were not alimony, then she might not owe taxes.

Classifying the donation as a property transfer could present another way to exclude it from Heard's taxable income. Once again, the divorce decree would need to state this explicitly to placate the Internal Revenue Service.

A person negotiating the terms of a divorce would need to know the Internal Revenue Service's criteria for designating assets as alimony or a property transfer. An attorney knowledgeable about the laws guiding spousal support could research the tax consequences of various approaches to payment. After examining the law, an attorney could propose settlement strategies that could limit the client's tax obligations with the appropriate language being added to the divorce decree.

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