Lack of Written Documentation Dooms Ex-husband’s Deduction for Extra Alimony

An ex-husband may have satisfied the golden rule, and then some, in helping his financially strapped ex-wife, but his failure to follow the Internal Revenue Service’s rules cost him the chance to use his largess as the basis for a federal income tax deduction. In Martin v. Commissioner, the U.S. Tax Court concluded that, because the couple had no written agreement to document the husband’s paying the wife an amount of alimony in excess of the original divorce order, the husband could only claim, as his alimony deduction, the amount originally ordered by the divorce court.

In December 2004, Danial Robert Martin and Ruth Martin ended their nearly 30-year marriage. Sometime after the divorce, Ruth experienced health problems and, as she was unemployed and without health insurance, fell into a substantial financial crisis. Ruth asked Danial to increase his alimony payments to her. Danial complied, raising his monthly payment from $1,000 to $2,300 for each month in 2007. The pair, however, never composed a written document memorializing their agreement, and never obtained a court order modifying the amount of spousal support.

When Danial filed his 2007 federal income taxes, he deducted the entire $27,600 her paid in alimony. The IRS declared Danial deficient, allowing him an alimony deduction of only $12,000, disallowing the difference between what Danial paid and the amount required by the terms of the divorce.

The Tax Court found Danial’s testimony was credible, and praised his willingness to help his ex-wife as “admirable.” In the end, it was not enough, as the court sided with the IRS. The court, while sympathetic to the ex-husband’s situation, explained that, to qualify for the alimony deduction, a payment must be made pursuant to a divorce or separation instrument. The Tax Code requires these agreement be made in writing. Payment made as a result of an oral agreement do not qualify unless “there is some type of written instrument memorializing the agreement,” the court explained.

In Danial’s case, the only written documents he could offer were letters from Ruth, detailing her health and financial woes. These letters were insufficient, though, because they did not demonstrate a “meeting of the minds” between Danial and Ruth to modify the alimony payments. As a result, the court concluded that the modification in alimony was the result of an oral arrangement, with no written documentation to back it up. As a result, the additional payments did not qualify. The ex-husband’s loss spotlights the absolute importance of securing, and retaining, written documentation for the deductions one takes. In this case, a quick call to an attorney might have saved the ex-husband substantial hassle… and money.

While individual income tax deductions can appear straightforward, the tax laws and regulations contain many pitfalls for the unwary or unprepared. To make sure your are properly documenting your files for your tax returns, consult the experienced tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C., who have in-depth knowledge to help people throughout New York and New Jersey. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

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