J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

37.2 Decree or Agreement Required

Alimony, to be deductible and taxable, must be required by one of the following divorce or separation instruments: (1) a decree of divorce or legal separation; (2) a written separation agreement; or (3) a decree of support. Voluntary payments are not deductible or taxable.

Divorced or legally separated.

The obligation to pay alimony must be imposed by the decree of divorce or separate maintenance or a written agreement incident to the divorce or separation.

Alimony paid under a Mexican divorce decree qualifies. Payments under a Mexican or state decree declared invalid by another jurisdiction do not qualify according to the IRS. Two appeals courts have rejected the IRS position.

Table 37-1 Key to Alimony and Marital Settlement Issues

Item—

Comments—

Alimony

The same rules determine whether alimony is deductible and taxable. For example, if a husband makes deductible alimony payments to his ex-wife, the payments are taxable to her. He may not deduct payments that are not taxable to her.If you are currently planning an alimony agreement, consider the tax consequences to both spouses. If the spouse likely to make the payments is in a significantly higher tax bracket than the recipient spouse, and keep in mind that in the next few years the top rate may be increased above the current top rate of 35%, there may be a significant tax savings for you as a couple in negotiating an agreement that qualifies the payments as alimony deductible by the ...