Alimony, or not?

[Bill Tubbs]

Client was married, but 10 years ago _thought_ she became divorced (she is now in her 60s and drawing retirement). A couple years ago however, she found out that the divorce was never actually filed -- says she even had a clerk of courts search for any divorce filing and none was to be found. Client has been receiving $1000/mo "alimony" payments for the entire time since she originally thought the divorce was finalized. In the past she has filed Single and claimed them as alimony income, which then allowed her to also fund a Traditional IRA. Last year she switched back to MFS (after finding the divorce was not actually filed, and therefore she is still legally married) and claimed alimony income and funded her Trad IRA (she has a folder of communication from the IRS regarding the Single vs. MFS and is trying to clear that up with them). There were no children in this marriage -- so there is no child support vs. alimony potential.

My question is: since the divorce was never filed with the courts, how can the payments from her husband to her be "alimony"?? Specifically, I'm not sure that Sec 71(b)(1)(C) is met:
"(C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made"
-- If the divorce decree was never filed (and client says there was no other legal separation order either), then I see them as separated, but not "legally separated".

Any comments/insight would be appreciated.

Bill

[taxea]

Alimony or not

Wow! Did she sign the final papers? Didn't she get a copy stamped by the court?
If there was no divorce or order of separate maintenance then my opinion would be that the IRS owes her the taxes she paid on the money reported. The least you can do is amend the past three years and take the alimony out for starters. Then I would get a retainer and go after the rest of the taxes she paid that she didn't have to. taxea

[Bonnie]

[QUOTE=Bill

My question is: since the divorce was never filed with the courts, how can the payments from her husband to her be "alimony"?? Specifically, I'm not sure that Sec 71(b)(1)(C) is met:
"(C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made"
-- If the divorce decree was never filed (and client says there was no other legal separation order either), then I see them as separated, but not "legally separated".

Any comments/insight would be appreciated.

Bill[/QUOTE]

My question would be does the ex or so called ex husband know the divorce is not final and that maybe he doesn't really need to be paying this so called alimony?? Maybe she is better off to leave well enough alone and continue collecting the alimony. If she files amendments with the IRS they will in turn go back on him if he deducted the alimony paid and he may then realize he doesn't have to pay it and also want back the past payments he never had to make??? Just a thought. If it was me, I'd just be happy to pay the tax in order to continue to collect the payments.

Bonnie

[jainen]

Let it be

>>the divorce is not final<<

I've checked my sources, and they were definitely divorced. Final. Just some lost paperwork shuffle somewhere along the line. Let it be.

[WhiteOleander]

To me, the biggest problem is that she contributed to IRA's based on the alimony income. So, technically she has excess contributions all these years.

Maybe she should go sit down with a tax attorney to find out exactly where she actually stands with all this mess.

[Bill Tubbs]

he stopped paying this past summer

My question would be does the ex or so called ex husband know the divorce is not final and that maybe he doesn't really need to be paying this so called alimony?? Maybe she is better off to leave well enough alone and continue collecting the alimony. If she files amendments with the IRS they will in turn go back on him if he deducted the alimony paid and he may then realize he doesn't have to pay it and also want back the past payments he never had to make??? Just a thought. If it was me, I'd just be happy to pay the tax in order to continue to collect the payments.

Bonnie

Me thinks the husband knows that the divorce was not final -- he supposedly went to court this past summer and got the OK to stop paying the $1000/mo -- me thinks he realized that if he's not divorced that he doesn't have to pay alimony. Regarding all the back payments, if they weren't alimony, then they were gifts.

I've checked my sources, and they were definitely divorced. Final. Just some lost paperwork shuffle somewhere along the line. Let it be.

Jainen -- huh? Either she's legally divorced or not. If there is no court order on file dissolving the marriage, how can you say they are "definitely divorced"?

She's already dealing with the IRS on whether she's Single or MFS. She's already filed at least 1 prior year return as MFS. The additional fun part here is that if they were never divorced, then he's now a bigamist and has apparently been filing MFJ with his new wife (at least so my client says).

To me, the biggest problem is that she contributed to IRA's based on the alimony income. So, technically she has excess contributions all these years.

Yep. And that's part of the reason she doesn't want me to amend last year's return. Don't know if we could request a waiver of the excess contributions penalty based on the fact she thought the alimony was alimony. (Anybody know if such a waiver could be obtained?) Or, see if she can let 2 more years go by on last year's return so that the Statute of Limitations expires...

Regarding filing her for 2006, I have already told her that I do not believe the payments to be qualified "alimony", and as such that she should withdraw her over-contributions for 2006 (she had already contributed $5000 to Trad IRA because of her believed-alimony). But I thought I'd better bounce it off the sounding board (thanks all) and see what others thought. Thanks for the input thus far, and I'd welcome any other input as well.

Bill