Colorado Divorce: IRS Maintenance Rules

Filed Under (Divorce and Legal Separation) on 12-05-2013

Alimony, Tax Rules, Divorce Forms

If you are doing your own divorce or legal separation agreement and you are planning for maintenance payments to one spouse, make sure that your agreement meets IRS requirements so that the payments will be deductible by the payor. The rules about what is, and what is not permanent maintenance (alimony in IRS language) have been simplified over the years. In order to qualify as maintenance that is deductible by the payor and taxable to the payee, a payment must meet the following requirements:

1.    It must be in cash or cash equivalent, like a check, not property (i.e., not in-kind, like a car or horse).

2.    It must be received by a spouse or former spouse of the payor, or by a third party on behalf of a spouse or former spouse.

3.    The payments must be made according to a divorce or legal separation instrument (a decree  or written separation agreement).

4.    You cannot be members of the same household at the time any payments are made either before your decree (temporary maintenance) or after your decree. You must move apart and be at different addresses within 30 days of the first maintenance payment.

5.    The obligation to make the payment cannot continue after the receiving spouse’s death.

6.    The payment is not “fixed as child support.” See also the related contingency rule in Chapter 11, Taxes, in the “Friendly Divorce Guidebook”.

7.    You have not said anywhere in your agreement (see 3. above) that these payments are exempt from maintenance tax treatment.

Before you finish your maintenance agreement, be certain it meets all these criteria.

For more information about maintenance and taxes, check out the “Friendly Divorce Guidebook: How to Do Your Own Divorce in Colorado” by M. Arden Hauer MA, JD