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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > PAYMENT PRIOR TO DIVORCE SETTLEMENT
Expert: Glenn D Schnabel
Date: 10/5/2008
Subject: PAYMENT PRIOR TO DIVORCE SETTLEMENT
Question
QUESTION: I was divorced 6 months ago, but the property settlement has yet to be settled. My family law attorney has had me continue to send my ex-wife the same money that she was living on prior to our divorce. This has become a significant amount of money, and I was curious if I could take this off my taxes
ANSWER: Jeff,
Thank you for your question.
1)This has become a significant amount of money, and I was curious if I could take this off my taxes
It depends on what these payments are for. If you are the non custodial parent, the answer maybe NO. If you are paying what is construed as "separate maintenance payments" or "alimony", then that would be deductible when paid.
If you are providing support for your children as a result of the divorce, this may count as support which may allow you to take the children as dependents on your tax return. Usually divorce payers will spell out if alimony is being made and who gets to claim the children.
Check with your family lawyer on this.
Hope this is helpful.
---------- FOLLOW-UP ----------
QUESTION: There are no children involved. How do I document or otherwise prove-up that these are "separate maintenance payments." This is not court ordered, but rather preserving the status quo until we settle,
ANSWER: Jeff,
Thank you for your follow up question.
1) How do I document or otherwise prove-up that these are "separate maintenance payments."
Reference :IRS Publication 504
Alimony
Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. It does not include voluntary payments that are not made under a divorce or separation instrument.
Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Although this discussion is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony.
To be alimony, a payment must meet certain requirements. Different requirements generally apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. The requirements that apply to payments under post-1984 instruments are discussed later.
Spouse or former spouse. Unless otherwise stated, the term “spouse” includes former spouse.
Divorce or separation instrument. The term “divorce or separation instrument” means:
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A decree of divorce or separate maintenance or a written instrument incident to that decree,
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A written separation agreement, or
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A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement).
Invalid decree. Payments under a divorce decree can be alimony even if the decree's validity is in question. A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid.
Hope this is helpful.
---------- FOLLOW-UP ----------
QUESTION: So I am out of luck?
Answer
Jeff,
Thank you for your follow- up question.
1)So am I out of luck?
My family law attorney has had me continue to send my ex-wife the same money that she was living on prior to our divorce.
I don't know why he would instruct you to do this without something in writing, like a divorce decree. Maybe he is trying to set a precedent based upon what you have been paying in the past and that she did not question it then.
I'm not a lawyer so I can not advise you whether that was right or wrong. I can only advise you that one of your goals is to maximize your deductions. Alimony is good way of writing off payments.
If you have some form of separation agreement in place, this may help.
Remember that she would like it to be non taxable and if you get alimony as a deduction, she has to pay taxes on that money.
You need to check with your family attorney to see if anything was in writing. Since there are no children involved, child support is not an issue. Splitting up the marital assets is and making a settlement between the parties is paramount to avoid costly litigation procedures.
I think you may have a strong case if your attorney dotted his i's and crossed his t's. Lawyers almost always get things in writing before they proceed with any action.
If I did not mention before, when your lawyer bills you, if he writes up your bill and allocates some of the work was for financial advice and assigns a dollar value to that, then that becomes a miscel itemized deduction subject to 2 percent of your AGI ( Adjusted Gross income)
Hope this is helpful.
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