On Strictly Legal I mentioned, almost in passing, that legal fees in family law cases are sometimes deductible for income tax purposes. Little did I know that it would trigger a wave of inquiries.

For some reason, a number of family law lawyers have not mentioned to their clients that legal fees paid in pursuit of child and/or spousal support can be deductable on an income tax return in the year in which the amount is paid (please note the emphasis on the word “paid” – it is not the year in which the fees are incurred, but the year in which you pay the lawyer’s bill that the amount is deductible).

The legal fees are deductible if they are incurred to obtain an order for child or spousal. They are deductible if they are incurred to enforce an order for child or spousal support. They are also deductible if they are incurred while varying an order for child or spousal support and importantly, for many families, the legal fees are deductible if they are incurred, someone’s attempt to reduce or eliminate the payment of child or spousal support.

I have made it my practice to assist clients by providing a letter at the time they are preparing their income tax return stating how much was incurred in the way of legal fees and what percentage of those fees can be attributable to the aforementioned categories. So, for example, in some cases 50% of the legal fees incurred may be related to the pursuit of a property settlement or sale of a property and 50% of the fees might be attributable to the pursuit of child and/or spousal support. In such a case, only 50% of the legal fees incurred and paid would therefore be deductible.

It also appears that legal and accounting fees that are incurred in an attempt to determine a spouse’s income for the purposes of paying or receiving support may also be deductible. In this case, it is best to check with one’s lawyer to ensure that the fees incurred and paid are properly applied to the correct deduction on the income tax return.

With legal fees and accounting fees becoming more and more expensive by the minute, this kind of deduction can free up much-needed cash for families struggling through expensive separations and divorce.

One last thing to note is that if a person is successful in obtaining costs against the spouse paying child or spousal support, that amount must be deducted from the amount that is being claimed as a deduction on the income tax return”.

If in doubt, speak to your lawyer and make sure that he or she provides you with the appropriate letter when you are preparing your income tax returns.

Michael G. Cochrane, B.A., LL.B.

This entry was posted on Tuesday, July 22nd, 2008 at 10:24 am.
It is categorized under Miscellaneous.
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