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socrateaser
socrateaser, Lawyer
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A divorced couple have an agreement that the ex-husband will

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A divorced couple have an agreement that the ex-husband will pass 50% (after tax) of any commission through to his ex-wife. He made an error on his tax withholding and owed $60,000 to the IRS. He paid the IRS and is asking that his ex-wife repay him the $30,000 (half of what he owed the IRS). This situation presents several questions. Is the ex-wife obligated to pay the ex-husband the $30,000 for his taxes owed? If she does pay him can she deduct this as taxes paid when she prepares her 2013 return? Or is this simply her returning an overpayment of the commission? Because he withheld too little in taxes and therefore passed more than he should have to his ex-wife? Also, will the ex-wife have to report the commissions as taxable income on her 2013 return? There is a separate payment for spousal support. Thanks for your help!
Submitted: 9 months ago.
Category: Legal
Expert:  socrateaser replied 9 months ago.
Hello,

What is the basis of the commissions (real estate sales, or something else)?

Also, if these commissions are based upon a government license, such as real estate, does wife have a license in same profession?

Thanks in advance.
Customer: replied 9 months ago.

Hello,


 


The ex-husband earns commissions through his employment based on job performance. He also receives bonus payments which are also split. These payments are not based on government contracts. In addition, he sold his business and receives "milestone" payments when certain goals are met. These payments are also split 50/50 with his ex-wife (after tax). All of these payments are made through his paycheck.


 


Thanks for your help!

Expert:  socrateaser replied 9 months ago.
Thanks for the added info.

If the amount of commissions was to be a 50/50 split after tax, then the question is: what is the definition of after tax for the purposes of the agreement.

After tax, can be the amount of commissions paid after withholding based upon the ex-husband's W-4, or it can be the amount of net income after the ex-husband has filed a final Form 1040 return with the IRS.

If the agreement is silent on how "after tax" is calculated, then the parties have a dispute that may require an arbitrator or judge to resolve.

As for the ex-wife's tax obligation, under federal tax law, a transfer of marital property incident to a divorce made within 12 months is generally not subject to income tax. But, what you describe here is not marital property -- it's future earnings, which is generally considered spousal support, when there is an agreement for such support.

Since you state that there is a separate agreement for spousal support, these payments would be either: (1) a "gift" from ex-husband to ex-wife, and thus not taxable (though reportable) to ex-husband, unless the aggregate amount of payments exceeds $5,250,000 during the ex-husband's lifetime; or (2) taxable income to ex-wife, but not deductible to ex-husband (a really, really bad deal for him, because this all should have been dealt with as additional spousal support).

In sum, this agreement is quite a hornet's nest. I'd love to provide a perfect solution here, but the reality is that there are probably a half dozen different ways to skin this cat. If it were me, I would try to revise the spousal support agreement to include these payments, because that would make the payments tax deductible to ex-husband.

Please let me know if my answer is helpful. And, thanks for using justanswer.com!
socrateaser, Lawyer
Category: Legal
Satisfied Customers: 33883
Experience: Retired (mostly)
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