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Attorneys Vic Hill and Brad MacDonald

Alimony, federal and state tax laws, and the IRS

At some point after a divorce had taken place, a husband agreed with his former spouse to make a single $20,000 lump-sum payment. In doing so, his wife assured him that he would then be relieved of his $500 per month spousal support obligations.

His wife’s assurances notwithstanding, the $20,000 lump-sum payment did not bring the matter to an end. Unfortunately (at least for the husband), the husband’s attempt to write the $20,000 off on his tax returns as alimony was rebuffed by the IRS.

The amending order concerning the divorce stated: “By agreement of the parties, Spousal Support is terminated effective September 2, 2007. In all other respects, the Divorce Judgment dated January 10, 1994, as amended on August 31, 2001, remains in full force and effect.”

The IRS could not interpret the language in the amended decree to have meant the final ending of all alimony payments. No reference to the $20,000 payment was ever made in the amended divorce order, and since there was no reference the husband was unable to demonstrate to the IRS that the $20,000 was an alimony payment.

Also, a statute from the jurisdiction where the divorce had been filed held that an alimony obligation only “ceases upon the death of either the payee or the payor with respect to any payment not yet due and owning as of the date of death.” Here, neither spouse had yet died – leaving the possibility of an alimony obligation open.

For all practical purposes, there is no such thing as a simple divorce. And what the above circumstance tells us is that even alimony can be extremely complex.

In Georgia, family law attorneys have to deal with state law, federal law, the needs of both spouses and changing circumstances before alimony can even be considered. Additionally, such attorneys need to understand federal and state tax laws (and consequences) as well.

Source: Forbes, “Easy to Trip Up on Alimony Deduction,” by Peter J. Reilly, July 4, 2012