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WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17233
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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I am a creditor in my ex-husbands chapter 13 in NY State,

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I am a creditor in my ex-husband's chapter 13 in NY State, as he owed me monies for a business we owned together. I have been awarded a settlement. Is this award taxable income?

WALLSTREETESQ :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on

WALLSTREETESQ :

It depends on what the settlement respresents. The following is general guidelines from IRS Publication 525, Taxable and Nontaxable Income.


To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Include the following as ordinary income.


- Interest on any award.


- Compensation for lost wages or lost profits in most cases.


- Punitive damages, in most cases. It does not matter if they relate to a physical injury or physical sickness.


- Amounts received in settlement of pension rights (if you did not contribute to the plan).


- Damages for:


- Patent or copyright infringement,


- Breach of contract, or


- Interference with business operations.


- Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.


- Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.


Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

WALLSTREETESQ :

Damages received related to economic loss, lost wages/income, and benefits are also all taxable

WALLSTREETESQ :

So if the settlement is for an economic loss you would have to pay taxes on it,

Customer:

the settlement represents monies owed to me thru our divorce settlement. It is not alimony.

WALLSTREETESQ :

only a limited amount of settlements are not taxed, and they are usually for physical injury

Customer:

This isn't helping.

WALLSTREETESQ :

Alimony received is taxable as ordinary income

WALLSTREETESQ :

Property settlements would be taxable as well, as income

Customer:

yes I know that but the monies given to me were for a buy-out of our business

WALLSTREETESQ :

That would be taxable,

WALLSTREETESQ :

If you had a business and he bought it out from you, the money paid to you would be taxable,

Customer:

he paid me some of the money prior to his bankrupcy and my attorney said I didn't have to pay tax on it.

Customer:

the business was in his name but because we were married for 20 years, i was able to receive a settlement from it

WALLSTREETESQ :

If it is property transferred pursuant to a divorce settlement then it is nontaxable, the divorce decree must state the transfer is part of the settlement,


Customer:

yes that sounds correct

WALLSTREETESQ :

Transfers between spouses are tax-free under IRC section 1041(a) only if they areincident to divorce – this means that the transfer occurred within one year of the termination of the marriage. Transfers made for the following six years are also considered incident to divorce if made pursuant to a divorce or separation agreement.

WALLSTREETESQ :

A chapter 13 settlement is different, that would be taxable,

Customer:

ok thank you

WALLSTREETESQ :

if the court is only enforcing a divorce settlement, then the money is not taxable

WALLSTREETESQ and other Bankruptcy Law Specialists are ready to help you

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