The Tax Court has held that the “unallocated alimony/child support payments” by a doctor to his ex-wife were non-taxable because the divorce agreement didnt specify that the liability to make the payments survived the death of the payee spouse, and therefore did not constitute alimony.
Donald Girard, MD, and his wife were divorced in December 2006. The divorce agreement provided: “Dr. Girard will continue to tender unallocated alimony/child support in the monthly sum of $5,232.00 for a continued eight-year period with the provision as long as Mrs. Girard should not remarry or cohabitate.” The divorce agreement was silent as to whether the payment obligation would terminate if either party died before eight years elapsed.
During 2010 Dr. Girard tendered monthly payments to his ex-wife, who did not report the payments as alimony income. The IRS issued a notice of deficiency. The Tax Court, in Crabtree v. Commissioner, T.C. Memo 2015-163, 8/17/15, determined that the payments weren’t taxable.
In reaching its decision, which was dated August 17, it was necessary for the Tax Court to examine Delaware law. If the instrument is silent or unclear as to the existence of a post-death obligation, the court noted, the payments may still constitute alimony if the payment obligation would terminate automatically by operation of state law. However, it found that Delaware law does not unambiguously provide for automatic termination in the event the payee died during the eight-year payment period, and concluded that the payments were not alimony and therefore were not taxable to the payee-spouse.
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