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Agreement to Change Taxability of Alimony

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JB Bear

Junior Member
What is the name of your state (only U.S. law)? CA

Right now, I pay my ex-wife $60k per year in alimony. This terminates in 2018. She's just not that good with money and has been having issues when tax time comes around so she's asked that I help her out with a change. She wants to know if it is possible to reduce the amount I pay her but in exchange I agree that the payments I make are still taxable to me. All the resources I find on alimony say that it's taxable to the recipient. Can this be agreed otherwise in an amendment to the settlement agreement?
 


single317dad

Senior Member
What is the name of your state (only U.S. law)? CA

Right now, I pay my ex-wife $60k per year in alimony. This terminates in 2018. She's just not that good with money and has been having issues when tax time comes around so she's asked that I help her out with a change. She wants to know if it is possible to reduce the amount I pay her but in exchange I agree that the payments I make are still taxable to me. All the resources I find on alimony say that it's taxable to the recipient. Can this be agreed otherwise in an amendment to the settlement agreement?
While it's very generous of you to consider assisting your ex-wife with her money management troubles, alimony remains taxable to the recipient.

If she were to offer to terminate the alimony entirely and you made a separate agreement for simple (and unenforceable by the family court) payments in its stead, then you could pay the taxes on that.
 

LdiJ

Senior Member
What is the name of your state (only U.S. law)? CA

Right now, I pay my ex-wife $60k per year in alimony. This terminates in 2018. She's just not that good with money and has been having issues when tax time comes around so she's asked that I help her out with a change. She wants to know if it is possible to reduce the amount I pay her but in exchange I agree that the payments I make are still taxable to me. All the resources I find on alimony say that it's taxable to the recipient. Can this be agreed otherwise in an amendment to the settlement agreement?
It would be a really bad idea all around. What you need to do is tell her that she needs to make quarterly estimated payments. That will make things a bit easier for her. Obviously your marginal tax bracket is going to be higher than hers.

Or, in the alternative you can tell her that you will give her directly less monthly, but deposit the remainder to make her quarterly estimated tax payments into an escrow account, and you make the quarterly payments for her.
 

latigo

Senior Member
So? Did you expect to find "sources" that says such payments are not taxable income.

But what are you asking? All I can make of it is that she wants to somehow receive the same court ordered post-divorce support without bearing the tax consequences. And you are vacillating.

If you want to phony up some sort of "amendment to the settlement agreement" designed to subvert IRS and then try to float it by a judge, well its your ass not mine.
 

JB Bear

Junior Member
I just found this:

"Payments designated as not alimony. You and your spouse can designate that otherwise qualifying payments are not alimony. You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order."


From an IRS Publication. Isn't this what she's asking me to do? Sign a document, make the designation that the payments aren't alimony, and allow her to treat it as excludable? And I would only deliver such instrument if the reduction in my payments to her made sense from a tax perspective?
 

Silverplum

Senior Member
You should see a therapist to find out why you still want to jump when your (now ex-) wife says for you to jump. You even ask her how high she'd like for you to jump.

Try not to jump off the edge of a high cliff, even if she begs you. It won't turn out well for you. Neither will this alimony scheme. :eek:
 

JB Bear

Junior Member
I'm really sensing hostility and I'm completely confused.

She said, basically "Listen, I have had to pay taxes the past couple years and it's a pain in the ass, can we just have you not deduct it from your income? We can agree to reduce your payments so it doesn't hurt your bottom line."

So maybe it sounds like a scheme, but I'm reading the IRS Publication that I couldn't find before I posted and it seems to say this is allowable, but I'm not a tax expert. All I wanted to know was if it was possible under the Internal Revenue Code. I promise I'm not going to agree to take all the tax burden and leave myself worse off than I already was. If we're going to do this, I'm going to bring in my accountant to make sure that the change is fair before agreeing to any change.
 

Silverplum

Senior Member
I'm really sensing hostility and I'm completely confused.

She said, basically "Listen, I have had to pay taxes the past couple years and it's a pain in the ass, can we just have you not deduct it from your income? We can agree to reduce your payments so it doesn't hurt your bottom line."

So maybe it sounds like a scheme, but I'm reading the IRS Publication that I couldn't find before I posted and it seems to say this is allowable, but I'm not a tax expert. All I wanted to know was if it was possible under the Internal Revenue Code. I promise I'm not going to agree to take all the tax burden and leave myself worse off than I already was. If we're going to do this, I'm going to bring in my accountant to make sure that the change is fair before agreeing to any change.
I wasn't trying to convey hostility. I was trying to convey exasperation and a sure sense of the financial doom you face.
 

LdiJ

Senior Member
I'm really sensing hostility and I'm completely confused.

She said, basically "Listen, I have had to pay taxes the past couple years and it's a pain in the ass, can we just have you not deduct it from your income? We can agree to reduce your payments so it doesn't hurt your bottom line."

So maybe it sounds like a scheme, but I'm reading the IRS Publication that I couldn't find before I posted and it seems to say this is allowable, but I'm not a tax expert. All I wanted to know was if it was possible under the Internal Revenue Code. I promise I'm not going to agree to take all the tax burden and leave myself worse off than I already was. If we're going to do this, I'm going to bring in my accountant to make sure that the change is fair before agreeing to any change.
It will never make sense for either of you. The fact that you are paying her that much alimony guarantees that you are in a higher marginal tax bracket than she is. Therefore you would pay more tax on the money than she would...considerably more. Therefore, in order for it not to hurt your bottom line, she would have to give up far more of it than she is paying in tax now.

Our federal tax system is a stair step system. Right now (after her standard deduction and personal exemptions) she is paying 10% tax on some of it, 15% tax on the bigger chunk of it, and 25% tax on the rest.

You would be paying 25-28% on all of it, in a best case scenario.

What's more, to change it now, after the fact, raises a red flag on your previous year's tax returns, and could cause you to be audited.

There is absolutely no scenario where this would be a good idea for either of you.
 

stealth2

Under the Radar Member
Hey Bear.... I'm experiencing a bit of a cash-flow issue myself.... Can we just draw something up that says we used to be married and you provide me with some tax-free income? I'd even cut you a good deal - $30k, say? PM me an address and I'll send a draft along.

Seriously, dude... If you REALLY want to help her, pay for a money management class or two. Pay a financial manager to help her develop a reasonable and realistic budget. Help her become a functioning adult instead of a child.

smh...
 
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tuffbrk

Senior Member
You're divorced. Her problems are no longer your responsibility to solve and here you are googling IRS tax codes and posting on a forum trying to figure out a way to make the life of your ex easier. In 3 years time she is going to have to figure out how to get along without any of the alimony money and will no longer have to be bothered with taxes. She might want to budget so she only spends 1/3 of it and puts the rest away. Then she'll adjust to less disposable income, have the funds to pay the taxes and provide herself with a little cushion for emergencies. It is perhaps time to reevaluate your boundaries. Let the ex deal with/solve her own issues.
 
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not2cleverRed

Obvious Observer
Do not get involved in your ex-wive's finances.

Just pay the alimony you owe and go on with your life.

Think: Why aren't you two still married? Why don't you two just remarry? What? There are good reasons you are no longer together? Then act like you're not together, not like you're her protector. She is an adult woman, and you are not in a romantic relationship.

An option for your ex: she can hire someone to handle her finances. *She* - not you. Because it is expected that normal functioning adults take care of themselves. She has to admit to herself that you are not responsible for her, she is generally irresponsible, and that consequently some of that alimony will have to be paid to someone who will manage her finances.

I have a relative who has this problem. He realized that he was in such a pickle that he brought everything in boxes to the bank and had them sort it out. One of the people tasked with this misery has since left the bank and retained my relative as a client. In return for a %age of my relative's income, the bills are paid. Including taxes. My relative doesn't even keep his checkbook at home.
 

JB Bear

Junior Member
I'm really in it for me. I agreed to the high alimony because that's how I was able to get her to agree to 50/50 parenting time. I sweetened the pot by telling her I'd pay her support far above the state guidelines. I was thinking about my kids and being able to spend time with them.

Now, I'm thinking about how I can make it better for me. If she's so worried about tax time, maybe I can convince her to let me reduce it to 40k which would put me in a better position.

I see how my first post sounded like I was thinking about her issues. I'm not. That's just the reason she gave for asking. I'm thinking about my own bottom line, my own finances. And I think maybe she's partly feeling guilty for taking all my money now that the bitterness of the divorce is over. Who knows. Either way, she's offering me a break, but wants to have the tax burden shifted back.

I spoke to my lawyer yesterday and she said that it is legally possible and she'd be happy to draw up the modification paperwork. I am going to sit down with my accountant to figure out where it puts me after an agreement, and what amount would make sense, before moving forward. I'm not going to agree unless I come out ahead.
 

LdiJ

Senior Member
I'm really in it for me. I agreed to the high alimony because that's how I was able to get her to agree to 50/50 parenting time. I sweetened the pot by telling her I'd pay her support far above the state guidelines. I was thinking about my kids and being able to spend time with them.

Now, I'm thinking about how I can make it better for me. If she's so worried about tax time, maybe I can convince her to let me reduce it to 40k which would put me in a better position.

I see how my first post sounded like I was thinking about her issues. I'm not. That's just the reason she gave for asking. I'm thinking about my own bottom line, my own finances. And I think maybe she's partly feeling guilty for taking all my money now that the bitterness of the divorce is over. Who knows. Either way, she's offering me a break, but wants to have the tax burden shifted back.

I spoke to my lawyer yesterday and she said that it is legally possible and she'd be happy to draw up the modification paperwork. I am going to sit down with my accountant to figure out where it puts me after an agreement, and what amount would make sense, before moving forward. I'm not going to agree unless I come out ahead.
If you have to pay 28% federal taxes on the money, and 9% state taxes (unless I have that part wrong for CA), then reducing it to 40k is not going to help you. 28% of 60k is 16.8k in federal tax and 9% of 60K is 5.4k in state tax for a total of 22.2k. Therefore you would have to reduce it to 37.8k JUST to break even. Do you really think that she is dumb enough to agreement to reduce it to enough to actually give you a real break on your bottom line?
She is probably paying no more than 12-14k in total tax on that income, and maybe considerably less.
 

JB Bear

Junior Member
Thanks for the numbers. I haven't had a chance to talk to my accountant to see if it makes sense, but if it's that much of a decrease for her, she probably wouldn't agree. Add in the cost of the attorney to draw up the agreement and file it with the court and... well... probably doesn't help my pocketbook as much as I was hoping.
 

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