If you’re getting a divorce involving alimony, it’s important to understand the tax consequences. It may seem like a small thing, considering the wide variety of critical issues you’re facing in divorce, but it’s not. Whether you’re paying or receiving, alimony can make up a big portion of your budget. The question of whether you can deduct the alimony you pay from your taxes — or whether you have to pay income taxes on the alimony you receive — can have a substantial financial impact.

The basic rules are that alimony is tax-deductible to the payer and is considered taxable income by the recipient. In fact, people who pay alimony don’t even have to itemize their deductions in order to deduct alimony payments — they just claim them as a deduction on the standard 1040 form. Those who receive alimony are also required to use the standard 1040 (as opposed to the 1040A, 1040EZ or 1040NR), because they’re required to report the alimony as income.

The real question is whether that money is legally considered alimony. You see, the fact that you’re paying to or receiving money from your ex after a divorce doesn’t mean that money is “alimony” for federal tax purposes. There are a number of requirements such payments must meet before they qualify as alimony.

The Internal Revenue Service covers which types of payments are considered alimony in Tax Topic 452. According to the IRS, For starters, both parties cannot file a joint tax return or reside in the same household if they are legally separated. Also, a spouse, former spouse or their representative must receive the payments, which can be paid in cash, money orders or checks.

The IRS also discusses various types of payments made under a divorce agreement that do not qualify as alimony. For example, voluntary payments, child support, payments made to maintain the payer’s property and non-cash property settlements are not considered alimony.

Additionally — and this is crucial — whether those payments are considered alimony depends in part on what your separation agreement or divorce decree says they are. This doesn’t mean you can avoid the tax consequences by simply labeling the payments “non-alimony.” A well-drafted settlement agreement, however, will carefully define the term “alimony” based on your particular circumstances and, as long as it is reasonable and accurate, that definition will generally be respected by the IRS.