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I am getting a divorce. I need to know if I will be

I am getting a...

I am getting a divorce. I need to know if I will be responsible for the taxes on support payments if I sign a separation agreement in 2018 but do not officially divorce until 2019.

Lawyer's Assistant: What steps have you taken? Have you filed any papers in family court?

No.

Lawyer's Assistant: Family law varies by state. What state are you in?

MD

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

Yes. Can we say that the monthly payments are in lieu of my claims on his pension so that the payments are not considered alimony and if I can is this a good idea?

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Answered in 7 minutes by:
3/22/2018
Sean K
Sean K, Family Law Attorney
Category: Family Law
Satisfied Customers: 472
Experience: Family Law Attorney in Private Law Firm
Verified

Hi, I’m Sean and I will be assisting you as an expert today. I’m an attorney with more than 20 years of experience. It is my goal to provide a solid overview of your situation. Whether the analysis is good or bad as to your matter, I want to make sure you understand any points you need and that you have options to better address the questions you have. If I am able, I will also provide you with some resources. Please note that the system, independent from me, may offer a phone call. You are not obligated to engage in a phone call, but I am happy to speak if you desire. This is completely up to you.

So are the support payments you are addressing to be considered alimony as opposed to child support?

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Customer reply replied 1 month ago
However, they are in lieu of my getting anything from my husbands two pensions. I need to know if we can write it up that way so I don't have to pay tax on it or wait until 2019 to divorce so that I don't have to pay the tax on the payments
Customer reply replied 1 month ago
In other words can the monthly payments be considered "not alimony"? If they are alimony I have to pay the tax unless we wait to until 2019.

There are likely several possibilities for a resolution.

First of all on the tax implication of alimony as it stands now. Under the new Tax Act that went into effect in January, alimony is still taxable to the payee and deductible to the payor if it is ordered or agreed to in 2018. If it is ordered or agreed to in 2018 then it remains taxable for the duration of the obligation and can remain taxable even if it is modified later (though there is a procedure to accomplish this on the modification).

Once 2019 hits alimony ceases to be taxable or deductible when set for the first time.

If you agree to or have it ordered in 2018 it would be taxable to you. If agreed to or ordered in 2019 then it would be nontaxable.

People have been using different approaches.

Some people are looking at the amount of alimony payable in 2018, doing a cost analysis and then looking at 2019 numbers and doing a compromise amount and setting in 2018 and saying that it would be nontaxable beginning in 2018 at the compromised amount. (I offer this as a strategy for continuing to call it alimony).

Now as to using a property settlement approach. It is completely common to have a waiver of alimony and take a larger part of a retirement as a property settlement which would not be taxable. However, the property settlement will continue on and cannot be modified as alimony could. As well, as it is a property settlement there would be no way to terminate the obligation (which would be good for you) as is sometimes done with alimony.

Please note: This is general information for educational purposes only and is not legal advice. There is no specific course of action is proposed and no attorney-client relationship or privilege formed within this conversation.

If you have any follow up questions it would be my pleasure to answer them. As experts we only get credit for the time and effort we spend on our answers if you rate us positively - 5 stars is definitely appreciated but not required! There is no cost associated with you rating me and you can still ask follow up questions after rating me and I will respond.

One final point, there may be a delay between your question and my answer; this is because I'm either not at my computer or helping someone else but rest assured, if you ask, I will provide an answer. Thank you again.

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Customer reply replied 1 month ago
I am not really sure I understand your alimony approach and how is it possible to modify alimony if it is written into the settlement agreement. Wouldn't I have to agree to that?

So generally if alimony is set, if there is a substantial change of circumstances later down the road Courts may entertain a new case to modify the alimony. Of course parties can agree to a modification at a later date as well.

Under the new law, if alimony was set in 2018 and then say in 2020 alimony was modified - even though the law then will be that alimony set after 2018 is taxable, if, as part of a modification, the parties continue the taxable/deductible nature, then it would continue.

The second point on modification is the alimony/property argument.

As I said above, alimony if agreed to or ordered, can be modified if there is a change of circumstances, it can also end or terminate under certain circumstances.

Property divisions cannot later be modified and do not terminate.

So if you waived alimony and took a larger portion of a retirement and then later your ex became employed and his income substantially increased, you would not be able to seek a larger amount of the pension. If you had alimony, you could seek more alimony.

Let me know if you have more questions and I am also free to speak as this can be a bit confusing at times.

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Customer reply replied 1 month ago
Okay, my husband and I are both near retirement and I do not see any substantial changes in financial status. He was the high earner so he has a quite substantial private and military pension. I am considering taking a monthly payment rather than us trying to figure out how to divide his pensions. I am still unclear as to whether the monthly payments could be considered something other than "alimony" and even if we write it up that way could he later claim it is alimony and make a case with the IRS that I should pay the tax (if we sign the separation agreement in 2018).

It is completely possible to waive alimony and take the payments that would have been alimony and have them come from more of the pension. The money would be the same, they would not be alimony and would not be taxable or deductible. They would also be treated as a property settlement rather than alimony.

Sean K
Sean K, Family Law Attorney
Category: Family Law
Satisfied Customers: 472
Experience: Family Law Attorney in Private Law Firm
Verified
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Sean K
Sean K
Sean K, Family Law Attorney
Category: Family Law
Satisfied Customers: 472
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