Military Retired Pay Split with Ex-Wife, but it all shows on his 1099R

[PDAllen]

TP divorced from spouse in 2014. TP retired from military FEB 2015. Court ordered that she receive a portion of his military retirement pay. The way they set it up all the retired pay is deposited to his bank and he ACH's her percentage over to her bank account every month. He stays current, no problem there.

DoD (of course) issued him a 1099R for the entire amount. I have not run into this before. Have seen a few where DoD splits it and sends it to both parties and issues two 1099Rs, one to each of the recipients.

He said his lawyer advised him to do it this way. No idea why, because it isn't alimony, it's more or less a property settlement.

Is there any way he won't be paying the tax on the full amount of the retired pay?

[Golden Rocket]

Attorney Has To Be Right

Of course, he's right, after all, he IS an attorney, right?

Taxpayer is entitled to an exemption on the portion going to ex-wife. But squirming out of claiming this is going to be difficult, maybe involving numerous letters to the IRS and OPM.

I can think of two possible ways...One is for the taxpayer to issue a nominee-style 1099-R to ex-wife. But to be honest, I've never heard of a nominee 1099-R although they can be quite common for 1099-DIV, 1099-INT, etc. Maybe some folks on this forum have some experience with it, I dunno. Then on his tax-return show the entire amount as received and only half the amount as taxable.

Another way is for the OMB to issue half to him and other half directly to ex-wife, which of course is not what attorney said to do. God forbid. That would cause a 1099-R to be issued to each party for the amount each received.

[S T]

Been many years ago, and not even sure if I processed correctly, What we did was issue a 1099R to the spouse receiving the the partial benefit, so she would claim on her return - Can't remember exactly how I entered on the computer for the Taxpayer for the offset

We never received any IRS or State notice

Later OPM corrected and then issued two separate 1099R one for the Taxpayer and one for the Spouse receiving a portion of the benefits.

Sandy

[FEDUKE404]

Retiree may lose

This could be a real can of worms.

Maybe wife wanted the $$$ but did not want the "income"?

There might be some shaky ground for the retiree since he IS receiving all of the income, and then he independently sends enough money (as stated) to his ex to cover his financial divorce obligations. IF the military is sending "his" monthly pay to two different bank accounts, that might help but also might carry little weight for the underlying facts.

Could well be construed as a property settlement. Likely not alimony.

How could you justify removing half of his retirement ("exemption on the portion going to ex-wife") from his taxable income with these circumstances? Would the ex declare it as income??

Best solution would have been for military to handle it, with two (fully taxable) payments to each via separate Forms 1099-R.

ADDITIONAL: Does wife get half of the gross retirement (intent?) or half of the net monthly payments which may include tax withholding and/or optional deductions such as insurance? (Add more worms to that can!!)

Yes, Shakespeare was indeed correct about those lawyers. . . .

FE

[PDAllen]

I've only ever seen situations where the Defense Finance and Accounting System is automatically sending both ex-spouses their share and then they both get 1099Rs. Based on this nugget from the 1099R instructions, this is apparently how it is supposed to be done.
>>>>>
Military retirement annuities. Report payments to
military retirees or payments of survivor benefit annuities
on Form 1099-R. Report military retirement pay awarded
as a property settlement to a former spouse under the
name and taxpayer identification number (TIN) of the
recipient, not that of the military retiree.
>>>>>

https://www.irs.gov/pub/irs-pdf/i1099r.pdf

Ordered some 1099Rs and 1096s from the IRS form ordering site. Looks like I need to figure out how to submit these forms manually. My software won't do it.

Thanks for the help! You folks are the best!

[Kram BergGold]

What I would do

If you are sure this is a CDRO, then report full amount as a pension received and deduct on half on Form 1040 line 21.
Also, he may not have properly informed the pension board about the QDRO. Tell him to get contact them and work it out so it does not happen again. Do not claim as Alimony. When it does not show up as alimony on the ex's return then there will be an issue for sure.

[taxea]

You need a copy of the document that addresses what this payment is. This should have been done through his retirement office so it would have been done correctly.
Report the full 1099 amount and allocate 1/2 to the ex's SSN. Include a detailed statement of facts and a copy of the document with the tax return. Keep a copy of both the statement and the document handy for each year you will need to do this.
Have the client contact his retirement office to insure the distribution is being handled properly.