A May 2017 Tax Court Opinion reminds us that to qualify as deductible alimony (among other requirements), payment must be required by a “divorce or separation instrument”. This is defined as:
– A decree of divorce or separate maintenance or a written instrument incident to such a decree;
– A written separation agreement; or,
– A decree requiring a spouse to make such payments.
In this case, although the parties had a written agreement, by oral modification only the parties’ agreed to increase alimony. Despite the payor’s sincere motivation regarding the increase and proof of actual increased payments, the Tax Court declined to treat the excess payments as deductible alimony.
While not the only requirements for alimony to be deductible, complying with all the alimony requirements is an important lesson, especially for alimony payors who deduct alimony from income on their tax returns.
A second lesson learned is that blaming tax preparation software will not protect against input errors of the self-preparer.
For newly separated or divorced spouses, it is well worth consulting with an accountant to understand tax consequences of the separation and divorce – both as it unfolds and afterward regarding tax consequences of financial aspects of the divorce.
Be it alimony, attorney’s fees, child dependency, head of household, or other related tax matters.