How to Handle Pension Payments to Ex-Spouse

[hey_sandie_girl]

I have a friend whose divorce decree was final on November 2019.  As part of the divorce, he was required to start making payments from his pension to his ex-wife (50%-50%) once they closed on the sale of the marital home, until the QDRO goes into effect.  So, basically from April-December he was writing a check for 1/2 his pension distribution for the month to his ex-wife.  Apparently QDROs take time to set up, but finally, in 2021, his ex-wife is now getting the payments directly from the pension.

He received a 1099-R for the full amount of the distributions, including the amount he then paid to his ex-wife.  

The pension distribution was not specifically mentioned as "alimony" in the divorce decree.

Below are what I think are relevant paragraphs from the IRS publication:

Divorce or separation instruments after 2018. Amounts paid as alimony or separate maintenance payments under a divorce or separation instrument executed after 2018 won't be deductible by the payer. Such amounts also won't be includible in the income of the recipient. The same is true of alimony paid under a divorce or separation instrument executed before 2019 and modified after 2018, if the modification expressly states that the alimony isn't deductible to the payer or includible in the income of the recipient.

QDRO Benefits paid to a spouse or former spouse.

Benefits paid under a QDRO to the plan participant's spouse or former spouse must generally be included in the spouse's or former spouse's income.

So, my question is this:  Which of these is correct?  Can he deduct the amount he paid to his ex in 2020 as alimony based on the QDRO rule or can he not do this because it's considered alimony for a divorce that was final after 2018?  HELP! 🙂

[SamS1]

It looks like he is out of luck. You are correct on the alimony after 2018 plus there was no alimony stipulation in the divorce agreement.  He should have waited for the QDRO to be set up.  It should not have taken 9 months.  Since the ex-spouse did not receive the payments from a qualified plan, they would not be considered QDRO benefits.  Here is a Tax Court case that addresses this situation:

According to an addendum to their divorce decree, the taxpayer deposited pension distributions into a joint account with his ex-wife for her exclusive benefit. He did not report the pension distributions on his income tax return. The Tax Court held the addendum failed to be a QDRO because direct payment was not made to the ex-wife as an alternate payee. Distributions were taxable income for the taxpayer even though his ex-wife actually received the money. (Hackenberg, T.C. Summary 2010-135)IRAs. 

[dmertz]

The separation agreement should have stated that the portion of pension payments given to the ex-spouse prior to the QDRO being completed were to be one-half of the amount net of taxes. Of course that complicates things a bit since the incremental tax liability isn't determined until the tax return is prepared.  As SamS1 said, there is nothing that can be done about it now.

[hey_sandie_girl]

Thank you for your advice!

[hey_sandie_girl]

Thank you!!