For alimony to be deductible under Sec. 215 (a) of the Internal Revenue Code (IRC), the payments must meet all four of the conditions specified in IRC Section 71(b) (1). One of those conditions is that the payment not continue beyond the death of the payee spouse. The payee spouse’s estate must not, under the divorce decree, marital settlement agreement, or, final judgment, have a right to continue to collect the support payments. There must be “no liability to make any such payment for any period after the death of the payee spouse…” IRC Sec. 71 (b) (1) (D). Whether that obligation exists is determined under the law of the state controlling.

Alimony arrearages reduced to money judgment under Colorado law

In Iglicki V. Commissioner, TC Memo. 2015-80, the Tax Court held that a taxpayer was not entitled to the alimony deduction.   The taxpayer had signed a separation agreement in Maryland during 1999 but lived in Colorado at the time of taxpayer filing the Tax Court petition.

The separation agreement that taxpayer was to pay $375 in monthly child support but no spousal support unless he defaulted on the separation agreement. If he did default, he became liable for $1,000 per month in spousal support. The spousal support would then continue until the earlier of taxpayer’s death, the former wife’s death or the 36^th monthly payment having been made. The terms of the separation agreement were later incorporated into a final judgment of divorce entered by the Circuit Court for Harford County, Maryland. After the divorce the taxpayer moved to Colorado and defaulted on his obligations under the separation agreement and final judgment. The former wife subsequently filed suit in the District Court of Del Paso County, Colorado (El Paso District Court) to enforce the separation agreement and divorce decree. The former wife obtained a filed a verified entry of judgment with the El Paso District Court, declaring among other things, that the taxpayer owed her $36,000 in spousal support plus $28,156 in interest for a total of $64,156 in spousal support arrears. The judgement is silent as to whether the payments survive the former wife’s death. Former wife then obtained a writ of garnishment against the taxpayer’s wages from the El Paso District Court.

During 2010 the taxpayers made from garnished wages, $50,606 in payments to his former wife of which $11,256 represented child support owed in addition to the spousal support.   He claimed an alimony deduction of $39,350 in his 2010 return. The IRS disallowed the alimony deduction of taxpayer in full.

The payments meet the first three tests of Sec. 71 (b) (1) in that:

1. The payment is made in cash to or on behalf of the spouse under a divorce or separation instrument.
2. The divorce or separation instrument does not designate the payment as not includible in the payee spouse’s income and not allowable as a deduction under Sec. 215 (a).
3. If legally separated under a decree of divorce or separate maintenance, the spouses are not members of the same household at the time such payments are made.

Thus, the only question regarding deductibility was whether the payments, under Colorado law, would continue beyond the former wife’s death.  While the original Maryland divorce decree met this test, the Colorado judgment for arrearages, against which payments were made, did not.   The court examined Colorado law which treats future support payments differently from payments made to satisfy support arrears. Future support payments terminate upon the death of either spouse. “By contrast, an order enforcing spousal support arrears becomes a final money judgment and the applicable statute of limitations is the general 20-year statute applicable to any other court order” (cites omitted). Since the verified entry of judgment was issued to assist Ms. Iglicki in collecting past due but unpaid spousal support, it is treated as a final money judgment” against the taxpayer. Under Colorado law the judgment would be enforceable against the taxpayer’s estate. Therefore the payments from taxpayer’s garnished wages failed to qualify as alimony under Sec. 71 (b).

Durational Alimony held non-deductible / non-taxable under Delaware law

Another recent Tax Court decision is Esther P. Crabtree v. Commissioner T.C. Memo. 2015-163 (filed August 17, 2015), in which the court applied Delaware law to determine that a provision in a divorce agreement created an obligation to make payments after the death of the payee spouse. The provision in question provided that, “Dr. Girard will continue to tender unallocated alimony/ child support in the monthly sum of $5,232.00 for a continued 8 year period with the provision as long as Mrs. Girard should not remarry or cohabitate.” The Delaware court then entered the divorce agreement as an order without hearing. Both the agreement and judgment were silent on whether the payments would survive the payee spouse’s death. The IRS had determined that the payments were taxable alimony and the payee spouse filed the Tax Court petition seeking to reverse that determination.

The Tax Court, applying Delaware law, found that the payments would continue for the entire 8 years and would not cease if the payee spouse died before the 8 year payment period had run. Thus, the payments failed to meet the condition specified in 71 (b) (1) (D) and were held to be non-taxable and non-deductible.

These cases illustrate how, absent a clear expression in the final judgment of divorce or divorce agreement, whether alimony is deductible alimony will depend in part on determining whether the payments, applying state law, would continue after the death of the payee-spouse. Moreover, even when the original divorce decree does provide that alimony payments cease upon the payee-spouse’s death, alimony arrearages and money judgments obtained for those arrearages may be treated differently.  That determination of whether alimony payments end on the date of the payee-spouse is a legal question that should be addressed by an attorney familiar with the state law of the particular jurisdiction.

What does Florida law say about alimony terminating on death of the payee spouse when the judgment or agreement is silent?

The outcome in Florida seems to turn n what kind of alimony is involved and whether the payments are for current alimony or arrearages.   Florida law contained in FS Sec 61.08 refers to four distinct kinds of alimony two of which terminate upon death and two of which are not presumed to terminate on death, as follows:

• Bridge the gap alimony – FS Sec. 61.08 (5) – the statute is silent.
• Rehabilitative alimony – FS Sec. 61.08 (6) (a) – the statute is silent.
• Durational alimony – FS 61.08 (7) – Terminates upon the death of either spouse.
• Permanent alimony _ FS 61.08 (8) – Terminates upon the death of either spouse.

Thus, for bridge-the-gap or rehabilitative alimony payments to be deductible, the divorce agreement or judgement would have to state clearly that the payments terminate upon the death of the payee spouse. If an agreement providing for durational or permanent alimony is silent on the death issue, however, the statutory presumption would govern and the payments would be deductible.

Florida arrearages on alimony that is being paid through the court depository

Here the statute (FS 61.14 6 (a) (1) specifically addresses payments made through the court’s depositary. A delinquency on payments to have been made through the court’s depository that continues for 15 days and is not successfully contested, becomes a final judgment by operation of law upon filing a certified copy with the court. “A certified statement by the local depository evidencing a delinquency in support payments constitute evidence of the final judgment.” (FS 61.146 (a) (2).

The final judgment is a money judgment that under FS 55.10 (1) becomes a judgment lien on real property in any county when a certified copy of it is recorder in the official records. The judgment lien has an initial life of 10 years from the date of recording but may be re-recorded for an additional 10-year term. (FS 55.10 (2). The judgment, unless satisfied, would remain valid after the payee-spouse’s death. Hence, payments made towards satisfying the judgment lien would be non-taxable and non-deductible because the Sec. (b) (1) (D) test is not satisfied.

An interesting point about this conclusion is that timely made court depository support payments provided for in an agreement or judgment that either expressly state the payments will end on the death of the payee-spouse, or, is silent on the subject, but are durational or permanent alimony under FS 61.08, are deductible to the payor-spouse and includible in the income of the payee spouse, assuming the other Sec. 71 (b) (1) tests are met: but, if the court depository payments become delinquent and the payee-spouse obtains a judgment, the payments are converted from deductible / taxable to non-deductible / non-taxable.

The payor-spouse does have an opportunity under FS 61.14 (c) to contest the arrearages before they become a judgment by operation of law. The payor-spouse can also pay-up the arrearages before the judgment by operation of law becomes effective and thereby retain the alimony deduction if the other Sec 71 (b) (1) requirements are satisfied. . For example, if the  payor-spouse contests the arrearages and then pays an agreed-upon amount before the judgment is effective.

Florida alimony paid directly and not through the court depository

When alimony payments, by agreement, are not paid through the court depository, the same rules as to deductibility / taxability would apply but the payee-spouse would have to initiate a court proceeding to obtain a money judgment. The threat of losing the alimony deduction could be leverage to encourage the payor-spouse to make timely payments; but, would the payee-spouse rather the payments become delinquent and be reduced to judgment thereby becoming non-taxable? I guess it depends on how badly the payee spouse needs the money and whether the payee-spouse strategically prefers to use the court’s contempt powers to enforce payment of the delinquent alimony in lieu of seeking to collect on a money judgment..

Thanks to Miami family law attorney Kurt Klaus who providing valuable insight into the court depository system and effect of a money judgment in Florida.

© 2015 by Robert S. Steinberg, Esquire
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