In order for alimony payments made under pretrial order to be deductible (for Adjusted Gross Income) and taxable to the ex-spouse, the following conditions must be met:
(1) Payments must be made in cash
(2) Payments are received under a divorce or separate maintenance court decree
(3) The divorce or separation agreement does not designate the payment as something other than alimony (for example, a property settlement)
(4) The payer spouse and recipient spouse are not members of the same household at the time the payments are made
(5) There is no requirement to make the payments after the payer or recipient’s death.
A question arose in a recent case as to whether payments made under a pretrial order are considered as deductible/taxable alimony. In 2009, the husband in question moved out of the marital home but his wife could not pay for the home’s upkeep and other needs. In January 2010, the husband paid his wife $1,000 per month for these expenses, based on a pretrial order from the state court, so she could maintain her financial status quo. A divorce decree was issued in November 2010 stating alimony was deemed to start in October 2010, and that the husband was required to make $1,000 monthly payments for 24 months.
The IRS claimed that the payments for January-September 2010 were not deductible because they were not made under a written instrument of a divorce decree. The U.S. Tax Court ruled the payments were alimony and deductible/taxable. The issue in the Tax Court decision was whether the payments were made under a divorce or separation instrument (the IRS claimed the pretrial payments were not).
The IRC states that the terms of a divorce or separation instrument must include a written statement incident to a divorce or separate maintenance decree. The Code does not state the medium nor form of writing for the decree. In the end, the court ruled that the pretrial order is a written instrument incident to a divorce or separate maintenance decree. The pretrial order did not state that the payments cease at the ex-spouse’s death, but Alabama law was clear on the nature of the payments. The pretrial order was intended to maintain the status quo of the ex-spouse until a final judgment of divorce was issued; under Alabama law, such payments end when either spouse dies. The Tax Court concluded that the fifth requirement (see the list above) was met and the pretrial payments were deductible/taxable.
[Barry Maurice Anderson. TC Memo 201647]
Dr. Goedde is a former college professor who taught income tax, auditing, personal finance, and financial accounting and has 25 years of experience preparing income tax returns and consulting. He published many accounting and tax articles in professional journals. He is presently retired and does tax return preparation and consulting. He also writes articles on various aspects of taxation. During tax season he works as a volunteer income tax return preparer for seniors and low income persons in the IRS’s VITA program.
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