Barbara J. Katzenberg, Attorney at Law
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The role of a written agreement in alimony and taxes

Most people know what happens when an ex-spouse fails to make alimony payments, particularly if the spousal support recipient is a low-wage earner. However, alimony-related problems go beyond those arising from nonpayment; overpayment can complicate the payer's tax returns.

Here is something that Worcester, Massachusetts, residents do not see every day -- a man being penalized because he overpaid alimony to his former spouse. In 2004, the man and his wife decided to end their 29 years of marriage, and the wife was awarded spousal support of $1,000 a month. In 2007, the ex-wife lost her job and suffered from a medical condition without any health insurance. As a result, she asked for an increase in her spousal support through a petitioner. The ex-husband willingly obliged and started to pay $2,300 a month. No written amendment was made to the agreement.

When the man filed his tax return, he deducted his $27,600 alimony payments. Unfortunately, the tax court permitted only $12,000 in deductibles because that was the amount written in the separation agreement. The court stated that the increase to $2,300 in spousal support should have been included in the agreement. Any amounts paid that are not written in the agreement cannot be included as deductibles.

Alimony payments may be based on the income of both spouses, their financial condition and the length of marriage. Most of the time, spousal support is included in the settlement in order to temper the economic effects of divorce. The agreed-on alimony payments should be stated in the divorce instrument, particularly if the amount is modified, because the tax court bases its deductibility decision on the written agreement.

Source: Forbes, "Tax court tells man he is a mensch but alimony deduction denied," Peter J Reilly, April 19, 2013

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