1. NQSOs a. If the decree specifies that the alimony receiving spouse will get a share of any options that are granted post divorce (not community property, for example per the cash bonus table of percentages) is there any tax deductibility for the alimony paying spouse at any time?
Alimony is tax deductible if (IRC Sec. 71(a)(1)):
- (A) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument,
- (B) the divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under section 215,
- (C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and
- (D) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse.
Assuming the payment to the supported spouse satisfies all four of the above-listed factors, then the payment is deductible to the supporting spouse.
b. As the bonus tables, delineate spouse support and child support, when each the child reaches 18, then would the sharing be restricted to just the spouse support percentage?
A: If the support payment is characterized as "family support" in the judgment of dissolution or marital settlement agreement, then there would be no reduction, because support is agreed to be an aggregate payment. If the support payment is expressly characterized as separate spousal and child support payments, then when any child is no longer entitled to support, the bonus would no longer apply to child support, and the amount payable would have to be correspondingly reduced. However, it's almost certain that the reduction would require a request for new orders to the judge, because the type of support order that you are describing is atypical.
2. Performance Share Units and Restricted Stock a. If the decree specifies that the alimony receiving spouse will get a share of the after tax net shares deposited into the alimony paying spouses account post divorce (for example 30 percent) is there any tax deductibility for the alimony paying spouse then these net shares are transferred to the alimony receiving spouse?
A: The answer is exactly the same as #1, above: if the four factors found in IRC Sec. 71(a)(1) are satisfied, then the payment is deductible -- otherwise not.
b. Can the 30 percent be classified as a percent to be spouse support and a percent to be child support such that as above when the child reaches 18 then this portion allocated to child support ends?
A: Yes, but only if both child and spousal support are awarded separately -- not if the entire payment to the supported spouse is characterized as "family support."
Note: The original objective of family support was to reduce the supporting spouse's effective payment by providing that both child and spousal support (aka alimony) would be deductible to the supporting spouse (because child support was and is not an available tax deduction. However, when the California Statewide Uniform Support Guidelines were enacted during the 1980s, the new law required that child support be calculated to consider the tax effect on the parties. See Cal. Family Code Sec. 4066. Consequently, for every dollar of deduction that the supporting spouse receives from a family support award, the computer software that calculations child support (e.g., Dissomaster, SupportTax, etc.), increases the amount of support to be paid by the same dollar. Thus, the concept of family support is nullified, and in my opinion, child and spousal support awards should always be separated in a marital settlement agreement or stipulated support judgment (n.b.: the court cannot award family support, so there is no risk of the judge making such an award after a trial on the merits; the risk is only if the parties settle their dispute before judgment).
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