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Tax Planning & Preparation, Litigation and Business Valuation, Family Law
What Constitutes an Alimony Agreement?
By David H. Goodman, Jul. 10th, 2018
By David Goodman, CPA/ABV/CFF, CVA & Jon C. Ames, CPA, CVA, MAFF
Under the Tax Cut and Jobs Act (TCJA), alimony will no longer be deductible by the payer and taxable to the recipient under divorce or separation agreements dated after December 31, 2018. The question is what constitutes a divorce or separation agreement?
The Internal Revenue Code[1] defines a divorce or separation instrument as:
  1. A decree of divorce or separate maintenance or a written instrument incident to such decrees,
  2. A written separation agreement, or
  3. An other decree requiring one spouse to make payments for the support or maintenance of the other spouse.
The Courts have interpreted "written separation agreement" to require a clear, written statement of the terms of support between spouses and entered into in contemplation of separation status. Generally, the agreement must be signed and dated by both parties.
There has been confusion as to whether the parties must actually be legally separated or divorced for alimony to be deductible. They do not.
In Nordurft[2], a spouse receiving payments from her husband under a written separation agreement was required to include the payments in income. The fact that the parties were not legally separated during the year and that the agreement was not enforceable under state law were irrelevant.
Decrees requiring a spouse to make payments that are enforceable under local law are also deductible, whether or not the parties are actually divorced.
The terms of alimony may be incorporated into a divorce or separation decree, but this is not necessary for the alimony to still be deductible. Where an alimony agreement is incorporated into a divorce decree and the decree is held to be invalid for other reasons, this does not negate the alimony agreement.
Two cases that indicate the parties must not be divorced or a final decree of divorce to have been issued are:
Norman D. Peterson v. Commissioner[3]. In this case, the Court ordered spousal support be paid under a tentative order. It was determined that the decree was enforceable under local (California) law and therefore qualified as deductible alimony. It should be noted that the final alimony award was comparable, but not identical, to the tentative award.

In Mary MacFadden[4], an alimony agreement was upheld, even though the actual decree of divorce was executed ten years after the alimony agreement. The parties contemplated divorce at the time of the agreement and the agreement was incident to the divorce. This case dates back to 1956.
Note that temporary orders of alimony under a judicial decree are deductible. Written alimony agreement executed in contemplation of divorce are also deductible, even if the parties are not divorced.
What constitutes a modification to an alimony agreement?
TCJA also allows for alimony paid under agreements dated prior to January 1, 2019 to continue to be treated as deductible/ta alimony - unless the parties specifically agree that the alimony will not be deductible/taxable.
In Johnson v. Commissioner[5] the appellate argued that an alimony agreement changing the timing and amount of alimony paid constituted a new alimony agreement. This was an issue because under the pre-1985 alimony rules (The Deficit Reduction Act of 1984) the alimony being paid by the appellate was not deductible. However, under the Tax Reform Act of 1985, the alimony paid would have been deductible. The parties modified their divorce agreement in 1997. The appellate sought to deduct alimony claiming that the 1997 agreement constituted a new stand-alone agreement. The IRS argued that the agreement was a modification of the original agreement executed in 1976. The Ninth Circuit agreed with the IRS stating that a modification of the timing and amount of alimony payments did not constitute a new agreement. Rather, it was a modification of the original agreement.
What if you go to trial without an agreement on alimony and the Judge has to make the determination?
Judges often take more than 90 days to issue their opinion after a trial. In cases where a spouse has been paying voluntary alimony under no written agreement, then the date of the Judge's decree will govern the alimony start date.
The key for parties getting divorced in 2018 who want alimony to be deductible to the payer and taxable to the recipient is to have a written, signed, alimony agreement in place by December 31, 2018. Should this not happen then a lower amount of alimony may be appropriate. But this is a topic for another article.
David Goodman and Jon Ames specialize in business valuation and litigation support for family law and business disputes at Gosule, Butkus & Jesson, LLP. Gosule, Butkus & Jesson, LLP is a full-service Boston area accounting firm servicing small businesses a
[1] IRC §71(b)(2)
[2] Antoinette J. Dato-Nodurft v. Commissioner, TC Memo 2004-119
[3] Norman D. Peterson, et al. v. Commissioner, TC Memo 1998-27
[4] Mary MacFadden, TC Memo 1956-287
[5] JOHNSON v. COMM., Cite as 97 AFTR 2d 2006-1716