Are Garnished Spousal Maintenace Payments Collected Pursuant to a Judgment Tax Deductible?

Daniel Noffsinger - Sunday, July 26, 2015

When a couple divorces or separates, one partner will often have to pay the other partner alimony or spousal support payments. Under the Internal Revenue Code, these spousal maintenance payments are tax deductible if certain conditions are met. What if one partner obtains a court- ordered judgment to collect upon missed payments? Are payments made pursuant to a judgment still tax deductible? One Colorado ex-husband argued that they were, but the United States Tax Court held differently.

Ex-Husband Claims Tax Deduction in Garnished Spousal Payments

In 1991, David and Christie Iglicki were married and they had one child together. In 1999, they filed a separation agreement in Maryland. The separation agreement did not require the husband to pay spousal support to his wife, unless he defaulted under the separation agreement.

If he did default then he would have to pay $1,000 in monthly spousal support. The husband would have to pay spousal support until one of the following: (1) the wife died, (2) the husband died, or (3) the husband made 36 payments. In 1999, the Maryland court entered a final divorce decree, which incorporated the separation agreement.

Following the divorce, the husband move to Colorado, where he defaulted under the separation agreement and divorce decree. The husband incurred spousal support obligations. In 2003, the wife filed a lawsuit in El Paso County, Colorado to enforce the separation agreement and divorce decree. The wife claimed that the husband owed more than $64,000 in spousal support arrears. The wife obtained a writ to garnish the husband’s wages.

In 2010, the husband made payments of $50,000 to his wife, which had been garnished from the husband’s wages. The husband claimed a tax deduction of $39,350 for alimony payments on his 2010 tax return. The IRS, however, issued a Notice of Deficiency disallowing the alimony deduction and assessed a penalty.

The husband filed a petition with the U.S. Tax Court challenging the Notice of Deficiency and assessed penalty. The husband argued that he was entitled to a deduction under the section of the Internal Revenue Code that permits a deduction in “an amount equal to the alimony or separate maintenance payments paid during such individual’s taxable year.” The U.S. tax court recently held that the husband was not entitled to an alimony deduction under the Internal Revenue Code.

To qualify for a deduction under the code, there must be no liability to make a payment after the death of the payee. The court noted that “Colorado law treats payments made to satisfy future spousal support obligations differently from payments made to satisfy spousal support arrears.” Ordinarily, future spousal payments terminate at death, while an order enforcing spousal support arrears becomes a final money judgment subject to the 20-year statute of limitations.

Notably, the court stated that under Colorado law, liability for payment of a final money judgment is not affected by the death of either the payor or the payee. As such, the spousal support payments failed to qualify as alimony under the Internal Revenue Code and they were not deductible.

Contact a Colorado Springs Divorce Attorney for Legal Advice

If you are going through a divorce and have questions regarding the process, a Colorado Springs divorce attorney at the Noffsinger Law can help. Contact a Colorado Springs family law attorney today at Noffsinger Law for help with all your family law needs. Call us today at 719-368-3688 for a free consultation or visit our office at 545 E. Pikes Peak Ave., Ste. 205, in Colorado Springs.