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Robin D.
Robin D., Senior Tax Advisor 4
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Experience:  15years with H & R Block. Divisional leader, Instructor
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I am getting divorced. An agreement was reached at mediation

Resolved Question:

I am getting divorced. An agreement was reached at mediation the gist of which reads:
As further equitable distribution of the parties assets and as a lump sum alimony to wife, husband agrees to pay the wife a sum of X dollars.
Originally, part of my wife's request was for $1000 per mt alimony for 3 years. Even though it all ended up as one lump sum payment, the term alimony was used in the agreement. My question is would the $36,000 [$1000 X 3 years] be tax deductible entirely on my 2013 taxes or $12,000 in 2013, 2014 and 2015? we will file separate returns. The divorce should be signed by the judge sometime before 7/13.
Submitted: 10 months ago.
Category: Tax
Expert:  Robin D. replied 10 months ago.

Robin D :

Hello and thank you for using Just Answer,
As the decree states that the amount is alimony and is designated to be made in the first year then you would be allowed to deduct the full amount in the first year. As long as you actually make the full payment. If you did not then you would only be allowed to deduct the amount you actually paid. You would also be subjected to the recapture rule. This occurs when the amount paid in the 2nd and 3rd year is less than the first but as your decree states the amount is alimony and is to be paid in the first year that would not happen.
Your spouse will need to report the full amount as income. If the lump sum alimony payment is more than your taxable income, any tax benefit on the excess amount would be lost. The deduction for alimony is a non-business deduction that cannot be carried forward or carried back to apply against taxable income in another year.

Robin D :

If the decree states that you are to pay $1000 a month then you should not pay in a lump sum because the excess over $12,000 for the year would not be seen as alimony.

Expert:  Robin D. replied 10 months ago.
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Customer: replied 10 months ago.

Thanks for the info just a quick follow-up. The way it's worded the payment is a combination of assets and alimony so even if I used only $500 per mt or $18,000 it would be enough to counter-act all my income taxes being that I will have to waste the excess anyway.---my income is about $50,000 per year.


Do I need to tell my ex how I am filing and the amount I'm listing for alimony? Also, we will end up divorced about 1/2 of 2013. Do we both file married filling separately? single filing separately, 1/2 and 1/2 or both?

Expert:  Robin D. replied 10 months ago.
The alimony will be a subtraction from your income. This means that if you pay alimony in the year of $18,000 then that same amount would subtract from your wages and you would then have an adjusted gross income of $32,000. Your ex-spouse would need to report the same amount as income that you report as the payment.
If you are divorced on the last day of the tax year you would not file married filing separate but you would each file single or head of household (if you had a dependent that allowed head of household status).
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 6937
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 9 other Tax Specialists are ready to help you
Customer: replied 10 months ago.

Thanks again for the help. I have already filled out the survey.


This is a little tricky so I want to clear it up if I can.


When I mentioned the $1000 per month that was in the initial offer from my EXs attorney none of that paperwork exists now.


This was mediation so all of the 5 hours of back-and-forth negotiations ended with a lump sum payment. I thought it was simply an asset payment. I am surprised that my EXs attorney allowed the alimony statement to be put in the final draft because the asset payment would not be taxable---an advantage to his client.


My Ex accepted a lump sum payment from me as a settlement and along the way nothing was ever mentioned about alimony until I read the final draft.


Note: I never talked to my wife about any of this she wasn't even it town but on SKYPE in another room with her attorney.


 


As I read it the lump sum payment is a combination of assets and alimony. With no background info I don't know how the IRS would look at it.


It would be best for the IRS if I claimed everything as alimony because I would lose money on the excess but they would tax my Ex on all of it.


It seems to me it would be easiest , because nothing else exists, to simply divide it in half and claim $38,750[1/2 of $77,500] as alimony and the same amount as assets.


With my $50-$60,000 income how much do you think I would I have to claim as alimony to cancel ALL my taxes for 2013?


nothing is ever easy! I use turbo tax and at the end of my return it rates my possibility of being audited and mainly because I use the standard deduction, I think, it always says my chances are very low--I've never been audited.


What I don't want to do is put something in my return that would red flag it. Maybe simply getting divorced in 2013 would be enough to flag it but I want to do what I can to see that doesn't happen.


BotXXX XXne I need to come up with some sort of justification for the IRS, [ if audited ] for the amount of alimony I am going to claim.


I voted for Obama but maybe I'll list myself as a Teaparty member and be audited for sure!!

Expert:  Robin D. replied 10 months ago.
For single taxpayers any income over $9750 of Adjusted gross income will generate tax. So any amount of alimony paid that reduces your adjusted gross income to $9750 or less would mean you would have no tax liability for 2013.
The divorce decree should state how much is alimony and how much is settlement of marital property. You can only us e the exact amount that is stated in the decree.
If it does not say what portion is what you would need to go back to your attorney and have them correct that.
Customer: replied 10 months ago.

I will check but I doubt that will happen. To do that would require and amended agreement agreed to by both parties and signed by the judge.


I just read over the entire agreement to see if a dollar amount was mentioned--it wasn't, however, here is the statement as to alimony:


"Husband shall pay to wife lump sum alimony as set forth in paragraph seven above".


paragraph seven is what I stated earlier. Does this statement, in essence, say that they assume that the ENTIRE lump sum is alimony?


I still can't figure out why my Ex and her attorney include alimony as part of the lump sum at all.------unless!-------I am retired and have, as I said, $50-$60,000 in income from pensions and SS. My Ex, on the other hand, has ONLY SS as her entire income--she could not survive on her own without going back to work.


However, she is being subsidized by her multi-millionaire daughter and son-in-law in Texas [ she's driving a 2013 Lexus SUV and living rent free in her own apartment in their million dollar house] but has been trying to direct the focus elsewhere to make her look needy. If that is the case, maybe her attorney felt that her best approach to get money from me was to ask for alimony because, on paper, she couldn't live without it. Maybe I will just claim ALL of it as alimony. What do you think? paragraph 7 never says the amount ISN'T ALL alimony and if it wasn't I would think they would want it spelled out as to what portion is. Assets don't have to be paid in a lump sum they can be paid as alimony. She will never need a dime again in her life but if she accepts monthly alimony then we are still connected for 3 more years--we have no kids together. With a lump sum payment it's over and done with.

Expert:  Robin D. replied 10 months ago.
If they reference back to paragraph 7 then any amount that is not from property (meaning cash ) would be alimony. So if you have to pay her any amount that is part of a property valuation then that would not be because it is property settlement. If it is splitting an account that would not be alimony. Any lumpsum amount that is not under splitting assets would be alimony.
Customer: replied 10 months ago.

Thank you I think I know how to handle this now.

Expert:  Robin D. replied 10 months ago.
Great

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