Experienced, Aggressive Coral Gables Alimony Lawyers Ready to Fight For You
In the Coral Gables area of Miami, Ayo and Iken PLC has an experienced team of attorneys that can help you navigate the complex waters of Florida Alimony Law. Our team understands that clients do not retain us to come in second place. By retaining us you gain access to one of the largest family law firms in the state of Florida. We will put our many combined years of experience to work for you immediately.
In our Coral Gables office, we use a team approach that:
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- Stays on top of key alimony legislation in Florida -to help you in your own situation.
- Has a large team of alimony and family law attorneys that consult on key issues.
- Offers their team constant training to help them succeed for their clients.
- Understands that coming in second place is not an option.
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Alimony and Taxes – Part 1
Did you know that if you pay alimony to your former spouse, you don’t have to pay taxes on that money? Here’s why. Alimony is part of the taxable income of the recipient, i.e. your former spouse. Internal Revenue Code (“IRC”) §71(a); also §61(a)(8). Therefore, as long as your alimony payments meet the requirements of IRC §71, you can deduct them from your income. IRC §215. But people do it wrong all the time. There are pitfalls that will leave you having to pay extra taxes. Let’s look at a few case examples.
Joseph Larry Becker v. Commissioner of Internal Revenue
T.C. Summary Opinion 2015-2
Mr. Becker and his ex-wife, Jennifer, separated in 2009, at which point he was obligated to pay child support and alimony. For the tax year of 2011, this obligation worked out to an amount of $8,205 for alimony and $8,307 for child support. That year, he directly paid an unreported amount for some child-related expenses so in accordance with his lawyer’s advice he reduced his child support payments to his ex-wife. Alimony and child support together, that year, he paid $9,688. However, on his 2011 tax return he claimed a deduction of $12,036 for the alimony. A certified public accountant (CPA) had prepared his tax return.
The United States Tax Court ruled that the deduction was too high. The Court pointed him to IRC §71(c)(1) which states that child support payments cannot be counted as alimony (and therefore would not be deductible from the obligor’s taxable income.) The Court then pointed him to IRC §71(c)(3) which states that any payment that is less than what the separation agreement requires, shall first be applied to child support. No payment may be applied to alimony until after the child support has been fully paid.
The Court subtracted the child support obligation from what he actually paid ($9,688 – $8,307 = $1,381) and concluded that only $1,381 was deductible as alimony. Even more painful for Mr. Becker, the Court ruled that he had to pay a penalty because despite the unfortunate advice of a CPA and lawyer, he should have known that he never paid $12,036 in alimony and couldn’t have possibly deserved a deduction that high.
What’s the lesson? First of all, hire good family lawyers and CPAs. Secondly, the IRS won’t give you an alimony deduction if you skimp on child support.
Franklin Rex Milbourn v. Commissioner of Internal Revenue
T.C. Memo. 2015-13
Ms. Marshall filed for divorce on June 9, 2005, seeking to end her 32 year marriage from Mr. Milbourn. During the course of 2005, Mr. Milbourn’s attorney drafted a marital dissolution agreement (draft MDA) which was meant to outline the terms of their divorce. However, the husband and wife couldn’t agree on one point, the amount of alimony. He wanted to pay “around $2,500 a month,” while she wanted $6,000 per month. Due to this disagreement, neither party signed the draft MDA.
The next year, in 2006, the court issued a divorce decree but left the other issues for them to resolve at a later date. During 2006, they continued to live separately and Mr. Milbourn began to make alimony payments to Ms. Marshall, totaling $37,000 over the course of the year. He kept good records and had proof of each payment, although the IRS disputed his proof regarding one $2,000 payment. On June 5, 2007, the court finally issued an amended divorce decree which incorporated a final MDA, which both parties agreed to and signed. The alimony payment was set at $4,500 per month.
When Mr. Milbourn filed his taxes (five years later), he claimed an alimony deduction of $36,000 for tax year 2006.
The Court didn’t give him his deduction. Here’s why. As stated above, IRC §215(a) allows an obligor to deduct alimony payments as long as those payments meet the definition for alimony described in IRC §71(b). The provision gives a four-part conjunctive definition, meaning all four parts have to be satisfied. The IRS considers it deductible alimony if it
- is received under a divorce or separation instrument,
- the divorce or separation instrument doesn’t specifically exclude it as a deductible payment,
- the separated husband and wife aren’t still living in the same household, and
- the payments end upon the death of the recipient.
The Court believed that Mr. Milbourn’s payments made in 2006 were not “under a divorce or separation instrument” because the most that the parties had between them at that time was an unsigned draft MDA. Mr. Milbourn argued that an unsigned draft MDA was good enough.
The Court explained that the Internal Revenue Code requires a “written separation agreement,” (IRC §71(b)(2)(B)) which, believe it or not, is not defined in the Code, the regulations, or in the legislative history. However, it has been “interpreted to require a clear statement in written form memorializing the terms of support between the parties.”Jacklin v. Commissioner, 79 T.C. at 348; Bogard v. Commissioner, 59 T.C. 97,101 (1972). More to the point, a separation agreement requires that the parties actually agree with each other on all the issues in the MDA.
Unfortunately for him, Mr. Milbourn and Ms. Marshall never came to an agreement before he started making payments. As far as the Court was concerned, the two didn’t have a written agreement until 2007 when they signed the final MDA.
The Court also gave a couple alternate scenarios that would have worked. An oral agreement is okay as long as it’s made in court and one uses the official transcript as evidence. Or if Mr. Milbourn had written a letter offering to pay a certain amount until they could come to agreement and Ms. Marshall had written back accepting that, it would have satisfied.
What’s the lesson? If you want the tax deduction, agree on the amount of alimony first and get it in writing. On top of that, the IRS penalized him for waiting five years to file his return.
Ayo and Iken can help you with your divorce, prenup agreements, alimony, and support. Consultations are always free in our South Florida office.