Self employed

If the issue isn't the division of community property income from your Schedule C (which was your original question I've already answered), I assume it is a transfer of an asset pursuant to a marital property settlement.   Such transfers are treated as gift under Internal Revenue Code Section 1041:

 

https://www.taxnotes.com/research/federal/usc26/1041?highlight=%221041%22

 

Such a transfer results in no immediate tax consequence.   There is a carryover of basis in the asset transferred.

 

I doubt that the divorce decree cited any authority for your/its position that your former spouse has taxable income and you are entitled to a tax deduction for the transfer of an asset incident to divorce.   You mentioned a specific asset (I'll have to look at your prior posting) but I haven't researched an exception to IRC Section 1041 with respect to that specific asset.

 

Section 1041:

 

(a) General rule. No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)--

(1) a spouse, or

(2) a former spouse, but only if the transfer is incident to the divorce.

(b) Transfer treated as gift; transferee has transferor's basis. In the case of any transfer of property described in subsection (a)--

(1) for purposes of this subtitle, the property shall be treated as acquired by the transferee by gift, and

(2) the basis of the transferee in the property shall be the adjusted basis of the transferor.