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Divorce documents must include all spousal payments

Kentucky couples who are ending their marriage may learn something from a U.S. Tax Court case. In the case, a man agreed to split a large bonus he had gotten at his job with his estranged spouse, and because they both signed an agreement stating that the bonus was community property, he believed the payment would be tax deductible. Unfortunately for him, there was one requirement that he missed.

In order for alimony to be tax deductible, it cannot be paid while the two partiesare living in the same home, the payments must end upon the death of the recipient and the alimony cannot be claimed as nontaxable in divorce settlement documents. However, the requirement the man in this case missed was that any spousal payments must be written into the divorce agreements in order for it to be deductible.

If the man had included the split bonus in the divorce agreement rather than in a separate document treating it as community property, that bonus could have been deductible for tax purposes. Although he claimed the alimony deduction on his taxes for the half of the bonus that he gave to his wife, the IRS did not accept this claim because it had not been written into the divorce settlement agreement.

Some of the complexities of divorce can have financial consequences. These intricacies may be explained by an attorney who focuses on family law. Consulting a lawyer may be advisable when an individual who is considering a divorce has questions about the financial ramifications of the end of a marriage.

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