Alimony Not For the Dead

Originally Published on forbes.com on July 19th,2011

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Dan V. Nicolas is the star of a recent tax court decision.  Mr. Nicolas was divorced in 2003 .  He was ordered to pay spousal suppot to Ms. Nicolas of $400 per month from March 1 to October 1.  I make that $3,200.  Sounds like he got a pretty good deal.  There was also a provision for attorney fees:

In 2004 the State court granted Ms. Nicolas’ request for attorney’s fees and issued a supplemental judgment for attorney fees (supplemental judgment) ordering petitioner to pay Ms. Nicolas attorney’s fees and costs of $6,829. The State court concluded such an award was appropriate because petitioner had more funds available and was in a better position to pay than Ms. Nicolas. The supplemental judgment states that the award of attorney’s fees and costs is in addition to, and not in lieu of, the judgments granted in the dissolution judgment. The supplemental judgment does not state whether petitioner’s obligation to pay the attorney’s fees and costs would continue if Ms. Nicolas were to pass away. Petitioner was not required to pay the attorney’s fees and costs until 18 months after the supplemental judgment was signed; but once the payment became due, interest accrued until paid.

Mr. Nicolas paid $6,178 to his ex-wife’s attorney in 2004.  He thought that he should be able to deduct that as alimony.  The IRS disagreed.  In order to qualify as alimony, a payment must meet four criteria:

(1) such payment is received by (or on behalf of) a spouse under adivorce or separation instrument - CHECK

(2) the divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under section 215 - CHECK 

(3) the payee spouse and the payor spouse are not members of the same household at the time such payment is made – CHECK

 (4) there is no liability to make any such payment for any period after the death of the payee spouse – OOPS

So no alimony deduction was allowed for payment to Ms. Nicolas’ attorney.  Maybe there was a lot more going on with this divorce, but it seems like they would have done better with mediation.  I know that if I had to pay twice as much to my ex-spouse’s attorney as I did to my ex-spouse, I would be aggravated.