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Divorce taxation (asset splits and alimony) question: can

alimony/maintenance be equalized with assets...
Divorce taxation (asset splits and alimony) question: can alimony/maintenance be equalized with assets in the following structure, from an IRS perspective? Alice and Bob have $200k in assets as a married couple today. Alice has $0 income and Bob will have $1 million of pre-tax income between their divorce on Oct 1, 2017 and Dec 31, 2017. Asset split and alimony structure is as follows.
Alice gets no assets in the divorce and Bob gets $200k. Alice gifts Bob a $600k promissory note. Bob agrees to alimony that pays Alice 100% of Bob's earnings in 2017 and no alimony in 2018 and beyond. Assuming 40% average tax rate on the $1M of Bob's earnings (for simplicity), they would both come out equal at the end. Alice: $0k assets - $600k promissory note gift + $600k after-tax alimony from Bob in 2017 + $400k alimony tax recapture from IRS in 2018 = $400k. Bob: $200k in assets + $600k promissory note gift - $400k alimony tax recapture from IRS in 2018 = $400k.(The objective of this structure is that Alice and Bob eventually want to have an equal amount of assets, but Bob would like to give all his 2017 income to Alice for state tax reasons, so the promissory note is needed to offset it. The question is whether the alimony would be reclassified as something else, because it looks like an instrument to equalize assets vs. a legitimate alimony.)
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Answered in 2 hours by:
7/28/2017
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
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Hi from Just Answer. I'm PDtax.

I can assist with this one, too, but the best way is with a complete review of what you want to accomplish, your state, other income 2017, property to divide, how you want to file 2017, etc. It might make sense to defer finalizing until 2018, for example.

I'll post an offer for a phone conference.

PDtax
PDtax, Certified Public Accountant (CPA)
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Customer reply replied 4 months ago
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