Employment Benefits and Divorce

Paper Summary:

The paper deals with the issue of who pays taxes on employee benefits that are transferred in a divorce agreement. It covers stock options, IRA's, qualified plans and QDRO's.

From the Paper:

"The issue of how to treat alimony for tax purposes comes up pretty frequently. The basic rule is that the person receiving the alimony payment must include it in their gross income and the person making the payments gets a deduction for their adjusted gross income. The IRS then goes on to clarify what payments made between the former couple are considered alimony. The IRS says that to be alimony there cannot be an agreement that the payment is not alimony, the two former spouses cannot live in the same household, there is no contingent liability to make payments after the death of the payee s spouse and that the payment must be in cash. Any transfer of property other than cash to a spouse under the divorce decree or an agreement is not a taxable event. The transferor would not be entitled to a deduction and the transferee does not recognize income."

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