Question: My wife and I separated in August 2004. In late 2004, my lawyer wrote her lawyer a letter telling him everything I had agreed to pay to my wife and on her behalf – direct support, car payments, etc. Her lawyer agreed to the proposal, and I made payments totaling nearly $32,000 during 2005 according to this agreement. We filed joint tax returns for 2004. My lawyer told me that everything I had paid during 2005 would be tax deductible to me, and that was in the letter.

Because my wife and I both wanted out of the marriage, we went to court last November (2005), and the judge approved our agreement that basically continued what I had been doing under the letter agreement. I’ve been putting off sending in my 2005 tax return, and was flabbergasted when my accountant told me that none of the payments I made to my wife in 2005 are tax deductible. He also said that my wife and I won’t be able to file joint returns for 2005. This leaves me with a big tax bill. Why aren’t the payments I made under the lawyers’ agreement tax deductible?

Answer: To be deductible, payments to a spouse must be made under a divorce or separation "instrument" that legally binds you to make the payments. To be legally binding, you and your wife should have signed the document. A letter between lawyers simply doesn’t do it. At a minimum, you and your wife should have signed the letter, agreeing to be bound or, better yet, your lawyers should have prepared a temporary agreement setting out your obligations and filed it with the court. Or, had your lawyer been thinking, he might have been able to negotiate an agreement signed by you and your wife that would be retroactive to the beginning of 2005 in an effort to get you the deduction you thought you would receive.

Additionally, as you now know, because you and your wife divorced in 2005, you and she can’t file joint returns for that year because you were not married on December 31st of 2005. Had you been advised to wait until January of this year to divorce, you could have taken advantage of joint returns – assuming your wife was agreeable to doing so. Your problem is precisely the reason many couples wait until early in the following year to divorce. Some even include a provision in their agreement acknowledging that joint returns be filed.

SoloFact: You received bad advice from your lawyer about basic divorce tax issues. For more information, look at the IRS website linked to this column because there are other legal requirements necessary to be able to deduct alimony payments, namely: 1) You and your wife don’t file a joint return with each other in the year you are taking the deduction; 2) Your payments must be by cash, check, or money order, not services or groceries; 3) The “instrument” you and your wife sign does not say the payments are not alimony; 4) You and your wife are separated and do not cohabit in the same house when you make your payments; 5) There is no liability for you to pay after your spouse dies; and 6) The sums you pay are not considered to be child support. There are also rules about “recapture” that can be found in IRA Publication 504, Divorced or Separated Individuals. Our web readers can click here