ALIMONY AND CASH
The word cash here is not intended to mean Mr. Green, but rather the economic form of the payment. In order for alimony to be treated as such (deductible to the payor and taxable to the recipient), it must be made in cash or the equivalent. For instance, checks, cash, money orders, etc. What that also means is that if payment is made in the form of a note, or property (think in terms of transferring a car), that is not allowed to be treated as alimony.
Tuesday, January 18, 2011
Monday, January 10, 2011
Kal's Kweries**
KWERY:
My husband is proposing that as part of our divorce agreement I receive alimony stated as a percentage of the net income of his business. I’m not sure if that’s a good idea.
RESPONSE:
Generally speaking, it’s not a good idea, unless you have a very high level of comfort as to the integrity and reliability of the reported net income. In a sense, net income of the business can be anything that your husband (or his accountant) wants it to be (obviously within reason and limits). My point here is that unless you clearly define how you get to net income (and even then this is questionable), any such arrangement is fraught with a multitude of problems.
My husband is proposing that as part of our divorce agreement I receive alimony stated as a percentage of the net income of his business. I’m not sure if that’s a good idea.
RESPONSE:
Generally speaking, it’s not a good idea, unless you have a very high level of comfort as to the integrity and reliability of the reported net income. In a sense, net income of the business can be anything that your husband (or his accountant) wants it to be (obviously within reason and limits). My point here is that unless you clearly define how you get to net income (and even then this is questionable), any such arrangement is fraught with a multitude of problems.
Anecdote of the Week
TURNABOUT IS FAIR PLAY
On behalf of a husband client, we had to investigate his wife’s retail business. He advised us he was concerned about our doing a complete job. Because his wife was beautiful, he did not want any male accountants on the assignment – whoever investigated the business had to be a female. We did not view that as the type of prejudice that rises to the level where you tell somebody to take his business elsewhere, so we accommodated our husband/client. He was absolutely right – his wife was beautiful. It turns out, she was also gay
On behalf of a husband client, we had to investigate his wife’s retail business. He advised us he was concerned about our doing a complete job. Because his wife was beautiful, he did not want any male accountants on the assignment – whoever investigated the business had to be a female. We did not view that as the type of prejudice that rises to the level where you tell somebody to take his business elsewhere, so we accommodated our husband/client. He was absolutely right – his wife was beautiful. It turns out, she was also gay
Monday, January 3, 2011
Tax Tip of the Week*
ALIMONY AND DEATH
In order for alimony payments to be deductible by the payor and taxable to the recipient, they must stop at the death of the recipient. That is, if an agreement provides for alimony to continue in some fashion after the recipient dies, then the entirety of same from day one is considered not alimony. In some states, such as New Jersey, it is state law that alimony stops when the recipient dies. Thus, for a New Jersey divorce, there is no requirement for there to be language that says the alimony will stop upon the death of the recipient. In the absence of such a state law, it is mandatory that there be language in the divorce agreement or similar document requiring same. Regardless, it never hurts to have that language. Note though that it need only stop at the death of the recipient – it can continue after the death of the payor. That is, the ex-spouse can reach into the grave and still collect alimony – it becomes an obligation of the estate.
In order for alimony payments to be deductible by the payor and taxable to the recipient, they must stop at the death of the recipient. That is, if an agreement provides for alimony to continue in some fashion after the recipient dies, then the entirety of same from day one is considered not alimony. In some states, such as New Jersey, it is state law that alimony stops when the recipient dies. Thus, for a New Jersey divorce, there is no requirement for there to be language that says the alimony will stop upon the death of the recipient. In the absence of such a state law, it is mandatory that there be language in the divorce agreement or similar document requiring same. Regardless, it never hurts to have that language. Note though that it need only stop at the death of the recipient – it can continue after the death of the payor. That is, the ex-spouse can reach into the grave and still collect alimony – it becomes an obligation of the estate.
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