Magazine article The CPA Journal

Unconscionable Separation Agreements Held to Be Alimony

Magazine article The CPA Journal

Unconscionable Separation Agreements Held to Be Alimony

Article excerpt

The Richardsons were married in 1983 and separated in 1983. Pursuant to the separation agreement, Mr. Richardson was to pay his wife $10,000 per month. In 1987, Mr. Richardson filed for divorce. During the divorce proceedings, Mrs. Richardson claimed the 1983 separation agreement was unconscionable because it was obtained pursuant to fraud and duress, an assertion later upheld by the Illinois courts. The divorce was granted in December 1990. Ultimately, Mr. Richardson's monthly alimony obligation was set at $26,700 effective February 1989.

Until 1988, the Richardson's filed jointly; but beginning in 1988, they filed separately. Mrs. Richardson, however, was notified by her husband on April 14, 1989, that a joint return was not being filed. She did not get an extension and ultimately filed in October 1990. Mrs. Richardson did not include the monthly payments she received pursuant to her divorce decree as income on her return.

Mrs. Richardson argued that the separation payments she received pursuant to an unconscionable agreement should not be includable as income. She argued that an agreement obtained under fraud and duress is no agreement at all and payments in such a situation should not be taxable. …

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