The Better Chancery Practice Blog

Internal Revenue Code § 71(f), provides that when alimony payments last three years or less, they will not likely be treated as tax deductible, even if the divorce judgment specifically states that they are deductible. 

You need to talk this over with a CPA to get some guidance before you draft your PSA or have your client testify, for example, that she wants 24 months of rehabilitative alimony.  This is one of those “tax consequences” of the award that is one of the Armstrong factors that the court is supposed to consider.  If you don’t put evidence in the record about it, you won’t have to worry about it because the trial judge simply won’t give it any thought.  Your client may call you later and ask for some financial assistance, though, and it probably won’t be a pleasant conversation. 

As with all IRS rules, I am sure that there are ways to draft an agreement to avoid the problem, and, of course, the amount of alimony can be adjusted up or down to accommodate the tax effects.

This IRS rule underlines the importance of including in your property settlement agreements a disclaimer that you have not provided any tax advice, and that the parties have been encouraged to get tax advice from a qualified expert.

Tagged: alimony, anti-dumping rule, deductibility, IRS Code, tax consequences