Make the Tax Code Your Friend—and Alimony More Palatable

• Published in: Family Advocate 2012-01, Vol.34 (3), p.16-19
• Main Author: MELCHER, CHRISTOPHER C.
• Format: Magazinearticle
• Language: English
• Subjects: Agreements; Alimony; Child support; Children; Cost control; Family law; Income taxes; Insurance deductibles; Internal Revenue Code; Laws, regulations and rules; Legal services; Mortgage companies; Mortgage loans; Property taxes; Spouses; Tax benefits; Tax deductions; Tax payments; Tax planning; Tax rates; Taxation; Taxes
• ISSN: 0163-710X; 2327-8331

We can use this rule to make sure that debts of the payee, which have been guaranteed by the payor, are paid in a timely manner by specifying in the order or agreement that those obligations will be paid directly to the creditor as alimony to the payee. Because the payor has no unilateral right to pay an obligation of the payee in lieu of alimony, the payment to the third party must be pursuant to an order or agreement. Treas. Reg. § 1.71-lT, Q&A, A-6. There is, however, an exception: "if such payment is pursuant to the written request, consent or ratification of the payee spouse." Treas. Reg. § 1.71-lT, Q&A, A-7. This might occur, for example, if alimony is normally paid directly to the payee, but he or she asks on one occasion for the alimony to be paid, instead, to a landlord. Here is the fine print. Look at who owns the house and who is liable on the mortgage. If the house and the mortgage are in the name of the payor, the payor cannot take an alimony deduction for paying the mortgage, even if the payee has exclusive possession. "Any payments to maintain property owned by the payor spouse and used by the payee spouse (including mortgage payments, real estate taxes, and insurance premiums) are not payments on behalf of a spouse, even if those payments are made pursuant to the terms of the divorce or separation instrument." Treas. Reg. § 1.71-lT, Q&A, A-6. This follows because the payment is not made "on behalf" of the payee. The payor is responsible for making those payments as the owner of the property or debtor under the mortgage and, thus, payment of those obligations cannot be treated as alimony to his or her spouse or former spouse. Simple enough. If the rule is violated, "[n]one of the payments before (or after) the death of the payee spouse qualify as alimony or separate maintenance payments." Treas. Reg. § 1.71-lT, Q&A, A-IO. "The divorce or separation instrument does not have to expressly state that the payments cease upon the death of your spouse if, for example, the liability for continued payments would end under state law." IRS Pubi. 504, p. 14 (2008). In fohanson v. Comm'r, 541 F3d 973 (9th Cir. 2008), alimony payments were deemed taxable to the payee, even though the instrument failed to state that payments would terminate on death, because California law provides that spousal support terminates on death, absent clear and convincing evidence of a written agreement to extend support beyond the payee's death. If the instrument requires a sp