Alimony, also known as Spousal Support in California, is GENERALLY deductible to the payor and taxable income to the payee. I highlighted the word generally because the mere use of the term Alimony or Spousal Support in a settlement agreement does not affect the tax consequences of payments. Internal Revenue Code Section 71 contains eight requirements that must be met for a payment to be considered taxable to the recipient and tax deductible to the payor. I will review all eight in the coming weeks.
REQUIREMENT # 3 – PAYMENTS MUST BE MADE PURSUANT TO A DIVORCE OR SEPARATION INSTRUMENT
I.R.C. § 71(b)(1) provides that the “term alimony or separate maintenance payment” means any payment in cash if such payment is received by (or on behalf of) a spouse under a divorce or separation instrument.
I.R.C. § 71(b)(2) provides that the term “divorce or separation instrument” means —
(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree,
(B) a written separation agreement, or
(C) a decree (not described in subparagraph (A)) requiring a spouse to make payments for the support or maintenance of the other spouse.
“While the instrument does not have to be part of the divorce decree itself, some written agreement must exist that creates a legally enforceable right to the support payments.” Anderson v. Commissioner, T.C. Memo 1999-53 (1999) (citing Prince v. Commissioner, 66 T.C. 1058, 1066-1067, 1976 WL 3686 (1976).
Alimony Taxation – Part 6
/in Divorce Financial Planning /by Justin ReckersAlimony, also known as Spousal Support in California, is GENERALLY deductible to the payor and taxable income to the payee. I highlighted the word generally because the mere use of the term Alimony or Spousal Support in a settlement agreement does not affect the tax consequences of payments. Internal Revenue Code Section 71 contains eight requirements that must be met for a payment to be considered taxable to the recipient and tax deductible to the payor. I will review all eight in the coming weeks.
REQUIREMENT # 6 – THE PAYMENT MUST TERMINATE AT THE RECIPIENT SPOUSE’S DEATH
I.R.C. § 71(b)(1) provides that the “term alimony or separate maintenance payment” means any payment in cash if —
(D) There is no liability to make such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property ) as a substitute for such payments after the death of the payee spouse.
Gray Divorce: The Question of Alimony
/in Divorce Financial Planning, Gray Divorce, Post Divorce Financial Planning /by Justin ReckersI was recently interviewed for an article written by Caryn Brooks for Reuters. The article, titled “Gray Divorce: The Question of Alimony” seeks to understand what if any difference there might be in decision-making regarding Alimony and Spousal Support in Gray Divorces.
Gray Divorce refers loosely to the dissolution of marriages when the parties are over the age of 55. I make no judgments as to whether a certain age makes a divorcee old. I do however believe there are many financial complications and intricacies to the dissolution of marriage at a later stage in life. I will review many of these issues, concerns and questions in detail over coming months in my Gray Divorce series.
The Reuters article quotes a Massachusetts attorney, Garbrielle Clemens, who shared the story of two of her clients “forgoing alimony in order to front-load money in case their ex-spouse can’t come up with the payments down the line”. Click on the link above to learn a little about my opinion regarding the front loading and/or buy-out of Spousal Support in long term marriages ending in Gray Divorce as well as some practical thoughts when considering it as an option.
Taxation of Alimony – Part 5
/in California Divorce Dictionary /by Justin ReckersAlimony, also known as Spousal Support in California, is GENERALLY deductible to the payor and taxable income to the payee. I highlighted the word generally because the mere use of the term Alimony or Spousal Support in a settlement agreement does not affect the tax consequences of payments. Internal Revenue Code Section 71 contains eight requirements that must be met for a payment to be considered taxable to the recipient and tax deductible to the payor. I will review all eight in the coming weeks.
REQUIREMENT # 5 – SPOUSES MAY NOT BE MEMBERS OF THE SAME HOUSEHOLD AFTER THE FINAL DECREE OF LEGAL SEPARATION, DIVORCE OR SEPARATE MAINTENANCE
I.R.C. § 71(b)(1) provides that the “term alimony or separate maintenance payment” means any payment in cash if —
(C) In the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made.
Taxation of Alimony – Part 3
/in California Divorce Dictionary /by Justin ReckersAlimony, also known as Spousal Support in California, is GENERALLY deductible to the payor and taxable income to the payee. I highlighted the word generally because the mere use of the term Alimony or Spousal Support in a settlement agreement does not affect the tax consequences of payments. Internal Revenue Code Section 71 contains eight requirements that must be met for a payment to be considered taxable to the recipient and tax deductible to the payor. I will review all eight in the coming weeks.
REQUIREMENT # 3 – PAYMENTS MUST BE MADE PURSUANT TO A DIVORCE OR SEPARATION INSTRUMENT
I.R.C. § 71(b)(1) provides that the “term alimony or separate maintenance payment” means any payment in cash if such payment is received by (or on behalf of) a spouse under a divorce or separation instrument.
I.R.C. § 71(b)(2) provides that the term “divorce or separation instrument” means —
(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree,
(B) a written separation agreement, or
(C) a decree (not described in subparagraph (A)) requiring a spouse to make payments for the support or maintenance of the other spouse.
“While the instrument does not have to be part of the divorce decree itself, some written agreement must exist that creates a legally enforceable right to the support payments.” Anderson v. Commissioner, T.C. Memo 1999-53 (1999) (citing Prince v. Commissioner, 66 T.C. 1058, 1066-1067, 1976 WL 3686 (1976).
California Divorce Dictionary: Bifurcation
/in California Divorce Dictionary /by Justin ReckersBifurcation refers to splitting of a main body into two parts or division into two branches. In a legal context it refers to the division of a trial or legal proceeding into two parts. California Family Code Section 2337 (a) states “In a proceeding for dissolution of marriage, the court, upon noticed motion, may sever and grant an early and separate trial on the issue of the dissolution of the status of the marriage apart from other issues.”
In other words, you can get be legally divorced and take status as a single person without reaching agreement on all issues in your divorce proceedings. This is common in very long litigation that may last years due to complicated financial issues. It is also common when one party wishes to re-marry which they obviously cannot do if still legally married to another.
Caution must be taken as bifurcation has very great ramifications on finances including Retirement plans, Taxes, Social Security benefits, Estate Planning and Life and Health Insurance coverage. Significant financial rules and procedures are laid out in Family Code Section 2337 to protect the status quo. Interim orders and temporary agreements such as joinder of retirement plans and indemnification agreements protecting the other party from taxes and other adverse affects of the change in marital status are often required.