alimony

[bm1242]

What is the name of your state (only U.S. law)? ca
i live in ca and have been paying alimony for 8 years (i was in a 24 year marriage). my ex-spouse has agreed to terminate alimony with a lump-sum buyout paid by me. what are the tax consequences and to whom?

[LdiJ]

Originally Posted by bm1242

What is the name of your state (only U.S. law)? ca
i live in ca and have been paying alimony for 8 years (i was in a 24 year marriage). my ex-spouse has agreed to terminate alimony with a lump-sum buyout paid by me. what are the tax consequences and to whom?

Alimony is tax deductible to the payor, and taxable income to the payee. I recommend that you have a contract drawn up on this and signed by all parties. Not only for your protection, but to prove to the IRS that it really was a lump sum buyout of alimony and not some other transaction (such as property settlement monies).

[bm1242]

thanks for the info. the ex's attorney is wording the court papers that the monies is a property settlement. they will not include in writing (the stipulation that is filed with the courts) that if this is deemed a tax consequence the ex will be responsible for taxes. instead, there is a separate memorandum stating the tax consequences that they don't want filed with the courts. i've been advised the memorandum isn't worth the paper it's written on. i guess we're off to court. she wants a hefty increase. she claims her business is down and she's struggling.

[LdiJ]

Originally Posted by bm1242

thanks for the info. the ex's attorney is wording the court papers that the monies is a property settlement. they will not include in writing (the stipulation that is filed with the courts) that if this is deemed a tax consequence the ex will be responsible for taxes. instead, there is a separate memorandum stating the tax consequences that they don't want filed with the courts. i've been advised the memorandum isn't worth the paper it's written on. i guess we're off to court. she wants a hefty increase. she claims her business is down and she's struggling.

If its written as a property settlement, or it really is a property settlement, then there are no tax consequences to either party. There are only tax consequences if its clearly stated to be alimony.

Unless of course you take the money out of retirement funds or something else like that that would create a tax consequence for you...and if so, it is NOT a good move.

If its still a good deal for you, even without being able to deduct the money on your tax return, then you may still want to go ahead with it. If its not a good deal unless you get to deduct the money, then you may not want to go ahead with it. A court isn't going to force you to do a lump sum "buyout".

[bm1242]

thank you for your advise. i'm still very concerned about this. this is an actual lump sum buyout of alimony. here is the verbage the ex's attorney is using. "it is hereby stipulated by and between the parties, petitioner, jane doe, and respondent, john doe as follows: in consideration of the lump sum payment, nontaxable, of $ paid by respondent to petitioner, spousal support payable by respondent to petitioner shall cease effective 01/2009 if said sum is paid. this is a division of property, and as such, is a nontaxable event to each party." my concern is the irs viewing this as a taxable event in the future and i'm concerned i will be liable for the taxes.

[bm1242]

i forgot to mention the monies would come from my savings and mutual funds accounts.

[LdiJ]

Originally Posted by bm1242

thank you for your advise. i'm still very concerned about this. this is an actual lump sum buyout of alimony. here is the verbage the ex's attorney is using. "it is hereby stipulated by and between the parties, petitioner, jane doe, and respondent, john doe as follows: in consideration of the lump sum payment, nontaxable, of $ paid by respondent to petitioner, spousal support payable by respondent to petitioner shall cease effective 01/2009 if said sum is paid. this is a division of property, and as such, is a nontaxable event to each party." my concern is the irs viewing this as a taxable event in the future and i'm concerned i will be liable for the taxes.

If you are the payer of the lump sum alimony, then you cannot be liable for the taxes. Its simply that you won't get a tax deduction on the money. The way this is written the IRS would not accept it as alimony, and therefore would not allow you a tax deduction.

[OldandTired]

Now here's what it "should" say:

"it is hereby stipulated by and between the parties, petitioner, jane doe, and respondent, john doe as follows: in consideration of the lump sum Spousal Support payment, taxable, of $ paid by respondent to petitioner, spousal support payable by respondent to petitioner shall cease effective 01/01/2009 if said sum is paid. This is a lump sum payment of spousal support, and as such, is a taxable event to the Petitioner."

Pay damn close attention to the date. Jan '09 has 31 days in it. To say it will terminate 01/2009, means it will terminate at the end of Jan, (meaning you could technically be held accountable for additional SS through Jan). To specify a date, means on that day.

You need to make certain that the language is 100% clear that this is a spousal support payment, and that it is taxable to the Petitioner. Make certain you're swimming in clean water when this is finalized.

[bm1242]

thank you everyone for your advice. i was advised if ex's attorney wants to file this as a division of property there has to be wording, filed with the court, if the irs deems this as an untaxable event ex pays taxes and i get to write off the monies. problem is, ex's attorney will not do this. instead, she is offering a memorandum, that is signed by both ex and myself, stating if irs deems this taxable, ex pays the taxes. i've been advised this will not hold up to the irs and I could possibly be responsible for the taxes because i gave her the money knowing it is a buyout of support and not a division of property. i would really like to end support as ex has already told me she won't be ready to end support at half length of our marriage. half amounts to 12 years of me supporting her, with her getting a cost of living increase every year. i,ve been paying her 8 years as is.

[bm1242]

Originally Posted by bm1242

thank you everyone for your advice. i was advised if ex's attorney wants to file this as a division of property there has to be wording, filed with the court, if the irs deems this as an untaxable event ex pays taxes and i get to write off the monies. problem is, ex's attorney will not do this. instead, she is offering a memorandum, that is signed by both ex and myself, stating if irs deems this taxable, ex pays the taxes. i've been advised this will not hold up to the irs and I could possibly be responsible for the taxes because i gave her the money knowing it is a buyout of support and not a division of property. i would really like to end support as ex has already told me she won't be ready to end support at half length of our marriage. half amounts to 12 years of me supporting her, with her getting a cost of living increase every year. i,ve been paying her 8 years as is.

sorry i should have said if the irs deems this as a taxable not untaxable event

[LdiJ]

Originally Posted by bm1242

thank you everyone for your advice. i was advised if ex's attorney wants to file this as a division of property there has to be wording, filed with the court, if the irs deems this as an untaxable event ex pays taxes and i get to write off the monies. problem is, ex's attorney will not do this. instead, she is offering a memorandum, that is signed by both ex and myself, stating if irs deems this taxable, ex pays the taxes. i've been advised this will not hold up to the irs and I could possibly be responsible for the taxes because i gave her the money knowing it is a buyout of support and not a division of property. i would really like to end support as ex has already told me she won't be ready to end support at half length of our marriage. half amounts to 12 years of me supporting her, with her getting a cost of living increase every year. i,ve been paying her 8 years as is.

I am getting a bit frustrated because I have explained this to you very clearly, and you seem to be ignoring my explanations.

I am going to try one more time. If its written up as alimony/spousal support its tax deductible to you and taxable income to her.

If it is NOT written up that way then there is ZERO tax consequences to anyone, other than the fact that you don't get to deduct the lump sum payment from your income for tax purposes. Marital property settlements are NOT and never will be a taxable event.

The only exception to that is that if you take the money to pay her, from a retirement account, then you will be held responsible for any tax consequence as a result of that.

Anything different from that, that anyone has told you, is NOT CORRECT.

If you are willing to give up the right to deduct alimony/spousal support from your taxes, then there is NO CHANCE that ANYONE could EVER be held responsible for taxes on the money in the future by the IRS. (other than you if the money comes from a retirement account).

If you still don't understand what is being said here, then PLEASE get yourself a consult with a local tax professional.

[bm1242]

thanks once again for your input but i have received another opinion regarding if this is taxable or not. their opinion is the legal paper should be worded exactly what this transaction is-a buyout of spousal support. and i'm inclined to believe this is the right choice for MY future protection from the irs. is this your personal opinion or are you an expert in this field?

[OldandTired]

Dude, are you not reading what we're posting here to you as advice?

"it is hereby stipulated by and between the parties, petitioner, jane doe, and respondent, john doe as follows: in consideration of the lump sum Spousal Support payment, taxable, of $ paid by respondent to petitioner, spousal support payable by respondent to petitioner shall cease effective 01/01/2009 if said sum is paid. This is a lump sum payment of spousal support, and as such, is a taxable event to the Petitioner."

Pay damn close attention to the date. Jan '09 has 31 days in it. To say it will terminate 01/2009, means it will terminate at the end of Jan, (meaning you could technically be held accountable for additional SS through Jan). To specify a date, means on that day.

You need to make certain that the language is 100% clear that this is a spousal support payment, and that it is taxable to the Petitioner.

If you didn't catch all of this, scroll up. Read it all again. You're making it very difficult with your responses to further want to advise you.

[bm1242]

old and tired. i'm not ignoring your advice. you are saying the court paper should state exactly what this agreement is-a buyout of spousal support. is this correct?

[OldandTired]

Absolutely. We are all advising you in that direction to preserve your right to claim this as a tax deduction, because you stated you would be removing the money to pay this from mutual funds, etc. You will incurr penalties for the withdrawals. Should you also take a beating on the luxury of being able to claim this on your taxes? None of us yet seem to think so.

Your ex is trying to enjoin you in tax evasion, because to me, that's exactly what this is. Her attorney is wanting you to sign off on this as though you agree, because she doesn't want to pay taxes that are justifiably due the IRS.

Don't get sucked into this game. Tell her she can have her money, so long as it remains as it has always been, a taxable deduction for you.