Tax Lawyer's Blog

“She cried and the Judge wiped her tears with my checkbook.”

 - Tommy Manville (married 13 times) -

I represent a taxpayer who entered into a marital settlement with his wife that contained the following provision:

12. Alimony

Husband shall pay to wife a lump-sum alimony of $600,000, payable in 120 equal monthly installments of $5,000 beginning on the first day of the second month preceding succeeding the date of this Agreement.

My client deducted $60,000 each year on his tax return for the portion of the alimony he paid; however, his ex-wife failed to include her receipt of the payments as taxable income on her returns.

Who is right?

My client is out of luck.

In Garner v. Commissioner, the U.S. Tax Court denied a petitioner an alimony deduction for amounts he paid to his ex-wife under a similar provision. The Court ruled that the addition of the phrase “lump-sum” together with the fact that the husband’s payments to the wife were not required to cease upon the wife’s death, compelled the conclusion that the payments were not alimony and, therefore, were neither deductible by the husband nor includible in the wife’s taxable income.

Moral of the Story: Have a tax attorney or tax CPA read the marital settlement agreement before you sign it.

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