Current Tax Issues

Keeping up with the most recent tax regulations and rulings is a difficult, but necessary, chore for the family law practitioner. While the following cases may not be breaking new ground, they reveal current tax issues that attorneys must take into account when negotiating and settling divorce matters. Denial of Deduction of Wife's Legal Fees Paid as Addi tional Alimony William A. Martin, 73 T.C.M. 22 (P-H) (Fla. 1979) Virtually every husband finds paying an ex-wife's legal fees abhorrent, and frequently such a practical and necessary requirement can bomb an otherwise accept able settlement. Thus, divorce lawyers, being very deal conscious as well they should, will often devise ways to circumvent the understandable resistance to payment of fees. One commonly accepted way of doing this is by paying wife more and requiring her to pay her own fees. And so long as it is accomplished in this manner, one should have no trouble with the IRS. Trouble does arise, however, when one departs from the simple device to a more complex one?the addi tional being made in one or more large chunks, separate from the clear alimony portion of the agreement. This was the problem in the Martin case. Mr. Martin, in a well-drafted paragraph seven of his agreement with his wife, agreed to a Lester-type lump sum settlement of $393,250, payable in monthly install ments of $3,250 per month for 121 months, specifying its commencement date, its taxability to the wife and deductibility by the husband. Paragraph seven likewise contained the wife's agreement to fully provide for the minor children and her concurrent right to claim the dependency exemption for them. So far, no problem. The trouble began, however, with the wording of paragraph 10, which reads: The Husband shall pay to the Wife as additional alimony the sum of Twenty-Five Thousand and no/100 ($25,000.00) Dollars. One half of said ali mony is to be paid to the Wife as soon as prac ticable but in any event prior to December 31,1972. The other half of said sum of alimony shall be paid