Discussion:Spousal equalization payment
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Revision as of 20:28, 19 October 2008 Dude7707 (Talk | contribs) (Researching and) Next diff → |
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| + | {{ForumReplyPost|UserID=Dude7707|Date=19 October 2008|Text=Researching and dicussing this with other CPA's concluded the following: | ||
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| + | Item 1 - These facts are not a transfer of property merely a cash settlement stated in the divorce decree therefore | ||
| + | none of the $230k is taxable. | ||
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| + | Item 2 - Cash Gift which is not taxable to T/P but subject to Gift Tax to the payor less the 1st 12k exclusion. | ||
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| + | As for reporting these transactions on T/P's tax return there is none. | ||
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| + | Since I have not seen the divorce decree what if there is no mention of T/P due from Ex of the 60% equity payment? | ||
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| + | Would the 230k then also be treated as a gift? | ||
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| + | Either way to me since no title or interests has been transferred all the the $400k is tax free since it respresents a cash | ||
| + | settlement between the 2 parties. | ||
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| + | Comments/Suggestions? | ||
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Revision as of 20:28, 19 October 2008
Discussion Forum Index --> Tax Questions --> Spousal equalization payment
| 6 April 2006 | |
| Hi I am new to this forum and am hoping someone can help with this issue:
Client was divorced in 2005 and in the divorce decree it lists all the assets and how they are to be divided. In addition wife gets the following equalization payment. Wife's Property Equalization Payment - "The wife shall be receiving a property equalization payment in the amount of $53,500 paid through the following vehicles: Intel Stock and Intel 401K Stock Purchase Plan." The stock was cashed and she received the proceeds of 21,000. The 401K was rolled over into an account in her name in the amount of 32,500. All good so far. Spousal Maintenance - "The wife has received a lump sum property equalization payment which is intended by both parties to be a lump sum spousal maintenance payment". Child Support - "husband is entitled, commencing on Jan 1, 2005, to add to wife's income and subtract from his income the amount of 1,000 a month for a period of 24 months." This 1,000 a month is used in the calculation of income to determine if husband has to pay child support. I don't have a lot of experience with divorce settlements and have never seen one worded like this. Does all this mean she has to claim the 53,500 as alimony? That doesn't seem right to me as it is really a property equalization but I'm worried about the fact that it also says it is to be viewed as spousal maintenance. Client is under the impression she has to claim the 24,000 and husband gets to deduct the 24,000 as alimony. I'd love some feedback from anyone with more experience than I have. Thanks, Sandy | |
| 7 April 2006 | |
| Property transfers that are incident to a divorce are not taxable. The cash payments of $1,000 per month might be taxable; however, if there is any possibility that the husband would be required to continue the $1,000 per month payment after the death of the wife, then the payment would not be taxable. | |
| 7 April 2006 | |
| I do not like disagreeing with Riley, but the $53,500 smells like agreed upon lump sum alimony, and I don't think the $1,000 per month is being paid. I think it is just being used to determine child support ie husband's 80K is considered $68K and wife's $56K is considered $68K so maybe no child support under formula.
Basis for Intel stock is a problem if alimony. Does anyone know if there is a step up due to income recognition and if so is it considered husband's disposition? | |
| 7 April 2006 | |
| Well, if there are no cash payments made to the wife, then there would be no income for her to report since alimony must be paid in cash and Sec. 1041 applies to proeprty transfers. | |
| 7 April 2006 | |
| Which is why it smells. The spousal maintainence agreement has to mean something. I wonder if the intent is cash equivilant and I also wonder if intent is enough to make it so. Transfer of appreciated assets and deferred income may be a case of lawyer trying to be too cute and losing the alimony deduction completely, regardless of the agreement. | |
| 17 October 2008 | |
| Facts: Single T/P now living in Washington has been offered the following from her Ex this year even though the AK house has FMV of 1m giving her 600k however It appears she is willing to take this offer but wants to know what if any of this is taxable. Divorce was final in 1/99.
1. 230k – Represents 60% Equity of their Primary Residence located in AK (Was written in Divorce Decree T/P would get 60% of the equity) 2. 170k – Represents cash gift.
Item 1. Would be taxable even though it pertains to the divorce since per Sec1041 it would NOT IF: a. transfer of property was made within 1 year of 1/99. b. Or if the equity provision was written into the divorce agreement which it appears to have been and transfer was was made within 6 years of 1/99 which clearly here has expired. Item 2. Not taxable since it is merely a gift. RE: item 1 – would not this be ordinary income reported on Line 21 of 1040 or Captial G/L, depending on what her adjusted 60% tax basis is on the home? To determine her actual tax liability I would need to get a copy of her 2007 return and use this an estimate for 2008 and add the 230k assuming this is correct process.
Would these be correct replies or am I missing something? Do you need further information to determine this?
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| 19 October 2008 | |
| Researching and dicussing this with other CPA's concluded the following:
Item 1 - These facts are not a transfer of property merely a cash settlement stated in the divorce decree therefore none of the $230k is taxable. Item 2 - Cash Gift which is not taxable to T/P but subject to Gift Tax to the payor less the 1st 12k exclusion. As for reporting these transactions on T/P's tax return there is none.
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