Lump Sum Alimony Payment

[jaquin]

What is the name of your state? Maryland

I signed a financial settlement with my wife, stating that the amount is paid off as one lump sum alimony payment. Does anyone know if the State of Maryland recognises this type of a settlement? I did it based on my accountants advice, so the sum will be tax deductible.

I have a caluse int he agreement stating that in the event this one lump sum is contradictory to State law, then this amount should be referenced as full and final settlement, and that the spouse drops all demands for alimony.

Opinions will be greatly appreciated. Thank you.

 

[LdiJ]

What is the name of your state? Maryland

I signed a financial settlement with my wife, stating that the amount is paid off as one lump sum alimony payment. Does anyone know if the State of Maryland recognises this type of a settlement? I did it based on my accountants advice, so the sum will be tax deductible.

I have a caluse int he agreement stating that in the event this one lump sum is contradictory to State law, then this amount should be referenced as full and final settlement, and that the spouse drops all demands for alimony.

Opinions will be greatly appreciated. Thank you.

Depending on the nature of the payment, your accountant may not have given you good advice from a tax standpoint.

Lump sum alimony is always viewed with suspicion by the IRS. A property settlement is NOT tax deductible and there is always a suspicion that any lump sum alimony is in reality part of the property settlement. Its a definite audit trigger.

Now, if she is clearly receiving her half of the property PLUS a lump sum alimony amount, then you have nothing to worry about in an audit. However I suspect that is not the case, based on the way that you worded your post.

 

[jaquin]

A property settlement is NOT tax deductible and there is always a suspicion that any lump sum alimony is in reality part of the property settlement.

You are right, the Alimony amount has to be incorporated into a judgement to be deductible. My situation hinges on the legality of a lump sum alimony payment in Maryland.

 

[LdiJ]

You are right, the Alimony amount has to be incorporated into a judgement to be deductible. My situation hinges on the legality of a lump sum alimony payment in Maryland.

No, you didn't understand me. Even if it is incorporated into a judgement as alimony, if the IRS believes that its nature is that of a property settlement, then the IRS will deny the deduction.

So, if you get audited (and there is a better than even chance that you will, since lump sum alimony is an audit trigger) if your divorce decree doesn't show that she received her share of the marital assets AND the lump sum alimony, you will be denied the deduction.