@dmertz
@Hal_Al
In general, retirement income is taxable. But the military doesn't follow the rules the IRS requires of everyone else. In the civilian world, if a court orders that your spouse pay you a part of their retirement income, they get a qualified domestic relations order (QDRO) that they give to the retirement plan payer. Then, the pension plan pays a portion of the pension directly to you and issues you a 1099-R for your portion of the pension, and it is taxable to you. The military (DFAS) does not follow this rule for spouses who are married less than 10 years. So even though, under IRS regulations, your spouse can use a QDRO to make sure they only pay tax on their half and you pay tax on your half, that doesn't happen with some military ex-spouses. DFAS pays the full pension to the retiree, the retiree is responsible for making payment to the other spouse, and the other spouse does not get a 1099-R from DFAS.
What happens next is more on the retiree than the spouse. For example, the spouse may object to paying the tax on their full retirement even though they have to send part of it to the ex-spouse every month. In this case, there are three possible answers.
A. The payment is designated as alimony or support in the divorce decree. The retiree can deduct the payment and the ex-spouse must report it as taxable income.
B. If the payment is not designated alimony, the retiree spouse can attempt to issue tax paperwork to the ex-spouse to show the IRS that the retiree is only responsible for tax on their portion and the ex is responsible for the ex's portion. This is something that I keep forgetting and so I have asked some other experts to comment and remind me, if this is even possible, and how to do it.
C. The retiree spouse is stuck paying the full tax and there is nothing to be done about it.
You are the other ex-spouse (not the retiree). You haven't explained what your situation has been for the past 20 years. It sounds from your question that you have been paying income tax, but you don't clearly say that. Here are my thoughts.
1. If you have been getting a 1099-R from DFAS, then there must have been a QDRO and you must have been married more than 10 years. You are correct to be paying taxes and your bankruptcy advisor is wrong.
2. If you have not be getting a 1099-R and were married less than 10 years, but have been paying tax, then I would pay attention to the other expert's answers about situation B above, and whether the retiree spouse can actually shift the tax burden. Why have you been paying the tax, and what paperwork have you been getting from your ex-spouse or the government?
3. If you have not been paying tax and your ex has not raised this as an issue, then just carry on as you have been.
