Not Legally Enforceable? It's Still Alimony!
Severance, Robert L., Metrejean, Cheryl T., Journal of Accountancy
In order for payments to qualify as alimony, certain requirements must be met. The payments must be in cash, and pursuant to a divorce, separation or written agreement between the spouses; they must terminate at the death of the recipient; and they must not be designated as something other than alimony in the agreement. In addition, the parties must be living apart when the payments are made. The Tax Court recently issued a ruling that specifically addressed the written-separation-agreement portion of the definition.
Ms. Dato married Mr. Nodurft in 1993. Unfortunately, it was not a match made in heaven, as they divorced several years later. Prior to the divorce, however, they had entered into a separation agreement that provided, in part,
* They would live separately and apart "for the rest of their natural lives."
* Mr. Nodurft would pay Ms. Dato-Nodurft $1,505 per month in spousal support until their divorce became final.
* If Mr. Nodurft failed to make these payments in a timely fashion and his wife had to hire an attorney to enforce the agreement, he agreed to pay the attorney fees.
* They would file joint returns for any year in which they were still married and eligible to do so under the tax law if it was financially advantageous to do so. The agreement provided for the division of tax obligations and refunds if and when joint returns were filed.
The case involved the tax year 2000, during which Ms. Dato-Nodurft filed a separate return claiming single tax status and failed to include in her income $18,608 of payments received under the agreement. The IRS assessed the additional amounts due on the return.
Result. For the IRS. Ms. Dato-Nodurft contended that because she and Mr. Nodurft were not legally separated during tax year 2000, the payments were not alimony. Further, she contended the separation agreement was not legally binding and therefore the payments made under it were not alimony. The Tax Court disagreed with both arguments.
Of Ms. Dato-Nodurft's first argument, the court said, simply, "We do not agree." What is interesting is that authoritative support for her position exists even though she didn't provide it. Regulations section 1.71-1(b)(2)(i), which defines the written separation agreement, says in part "if the wife is divorced or legally separated subsequent to the written separation agreement, payments made under such agreement continue to fall within the provisions of section 71(a)(2)"
In Bogard, 59 TC 97, payments made by a husband to a wife were determined by the Tax Court to be alimony. …