Jan L. Warner & Jan Collins
Question: Since my husband and I could not settle our divorce case, we went to a hearing and the judge granted a decree that required that my ex husband make certain payments of alimony to me and to pay other obligations – including premiums on life insurance covering him which was transferred to me – directly to the insurance company. He also allowed me to live in the house – which is owned by us jointly and on which we owe a mortgage – for five years at which time it would be sold, and required him to pay the payments, taxes, insurance, and upkeep. It’s getting near tax time and, other than the direct payments to me, neither my lawyer or accountant can tell me what will be taxable to me and what won’t. Why is this so difficult?
Answer: In a perfect world, those who prepare matrimonial agreements and orders would follow the basic rules and those responsible for advice to clients would understand those rules so that questions like yours would not be necessary. Obviously, we don’t live in a perfect world.
The general rule is that payments from one spouse to or on behalf of another spouse are taxable to the receiver (you) and deductible from the gross income by the payor (your ex-husband) if 1) the payments are made and received according to a marital agreement or court order under which you and your husband are physically separated, (2) the payments are in cash, (3) your husband’s liability to make payments ends with your death, and (4) the agreement or order does not say the sum paid to you are tax free or not deductible.
Regarding your ex-husband’s obligation to pay your half of the indebtedness for your jointly owned-home, unless the court order specifies that these payments by him of are free of tax, it is very likely that you should include the gross amounts paid in your income. There may be some issues regarding your ability to deduct your share of the interest and taxes that would have been deductible to you had you paid them, but such is too lengthy and complex for this column.
Your former husband’s payments of premiums for a policy insuring his life will probably be taxable alimony to you since you are the owner of the policy – again unless the court order provides otherwise.
Bottom Line: While we can certainly recite the rules so you and our other readers can be prepared to ask the right questions about taxation issues at divorce, we are not in a position to interpret your divorce decree – nor should we be asked to do so.
You hired a lawyer and an accountant to assist you in the divorce process. As such, you are entitled to these answers from them. It is astounding to us that professionals who practice in this field and who have had the opportunity to review your court documents can not give you an opinion about the taxability of these payments. Your lawyer apparently did you a good job, and his duties may be over, but we suggest that you change accountants before you get yourself in trouble.
FLYINGSOLO.COM extra, click on the link to visit the IRS website that touches on alimony deductabillity, IRS