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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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In 2010 My husband got a Value Appreciation Rights. Employer

Customer Question

In 2010 My husband got a Value Appreciation Rights.

Employer reported as Gross Wages on his W2 line 1.

This was not a Stock Plan or 401K Plan. It was an employee Incentive Plan to stay on with the company.

My Husbands ex-wife took him back to court claiming that the Value Appreciation Rights were awarded to him during the years they were married, but were in a ten-year vesture.

In 2011 she took him back to Family Law Court, but because she filed Bankruptcy in 2010 her trustee came after both my husband and myself for those community property assets to pay back her creditors.

She won a settlement.

Do we go back and amend our 2010 taxes to reduce the amount of wages he received? Those were gross wages we reported.

Or do we write that off on our taxes this year?

The courts viewed it as a Non-Qualified Deferred Compensation.

We are to pay those funds to her trustee.

How do we write this off on our taxes? Do we write it off to her or the Trustee?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
The Value Appreciation Rights (or stock appreciation rights) is a form of incentive or deferred compensation - and as such is considered as an asset. Because rights were granted in 2010 - the fair market value was correctly treated as wages and reported as such on W2. So you may not amend your 2010 tax return - but the value included into wages constitutes the basis of that asset.
However - you need to report the disposition of that asset (or part of the asset in case not all rights were disposed) when it was sold in 2011. So you might have either a gain or a loss on the disposition.
Because the asset was classified as a community property and was part of the divorce property settlement - the payment to her trustee may not be deducted. Only alimony payments may be deducted - payments due to property settlement could not be deducted.
Sorry if you expected differently.

Customer :

They were not stock appreciation rights- he did pay anything to them.

Customer :

Bonus

LEV :

Regardless - that was an asset given as a compensation for employment - and as such is taxed as wages.

Customer :

But now they took his wages away.

Customer :

We paid taxes on that.

Customer :

Lost it as a Money Judgment

LEV :

That should be part of the settlement to account for the tax liability. So because your payment is made with after tax funds - your tax liability should be subtracted from the total awarded value.
However - you would not be able to transfer the tax liability to the other party.

Customer :

Who gets it. The Trustee?

LEV :

That is based on the court order - either it would be paid to his ex-spouse or to the trustee to distribute to creditors. Still it is considered as a property settlement due to divorce.

Customer :

So we just eat it?

Customer :

It's $150,000

LEV :

Unfortunately - I do not see any way to deduct that settlement - you may discuss the issue with your attorney who prepared the settlement - it it is possible to take the issue back to the court and account for the tax liability - so the value would be determined in after tax money. But generally - that all you may do. Sorry.

Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

Unfortunately - I do not see any way to deduct that settlement - you may discuss the issue with your attorney who prepared the settlement - if it is possible to take the issue back to the court and account for the tax liability - so the value would be determined in after tax money. But generally - that all you may do. Sorry.

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Taxes, Immigration, Labor Relations