The Eight Requirements for Qualified Alimony: Part Two

Part Two: The Payment is Received by or on Behalf of a Spouse (or Former Spouse) of the Payor

Alimony or separate maintenance payments are included in the gross income of the payee spouse and allowed as deduction from the gross income of the payor spouse.

A payment under a divorce or separation agreement executed or modified after 1984 qualifies as alimony if:

Life insurance: Premiums paid by the payor-spouse for term or whole life insurance on the payor’s life will qualify as alimony payments when made under the terms of the divorce or separation instrument to the extent that the payee-spouse in the owner of the policy. There must be a complete transfer of policy ownership pursuant to a qualifying divorce or separation instrument. A limited transfer is not sufficient. It is also not sufficient to merely designate the payee-spouse as a secondary beneficiary of the policy.

Income taxes: A payor-spouse sometimes agrees, either in a written instrument incident to a divorce or separate maintenance decree or in a separate maintenance agreement, to reimburse the payee-spouse for income taxes due on the alimony payments. If the payor-spouse agrees to pay the additional tax for which the payee-spouse would be liable on the reimbursement of the taxes, the additional tax payment also constitutes taxable alimony.

Payments on Property: Payments by the payor-spouse on property used by the payee-spouse may or may not be deductible depending on the facts. Payments to maintain property owned by the payor-spouse but used by the payee-spouse are not payments made on behalf of the payee-spouse, even if they are made under the terms of the divorce or separation instrument. Therefore, mortgage payments or real estate taxes on a house owned by the payor-spouse are not deductible as alimony by the payor-spouse.  If the property is owned by the payee-spouse, the payments by the payor-spouse are deductible as alimony if made under a divorce or separate maintenance decree.