**Tax Year 2018 or earlier** How would/does the IRS treat the money obtained by a spouse who receives a lump-sum payment for compensatory damages in a divorce action?

[Opus 17]

What do you mean "compensatory damages"?  As in a personal injury lawsuit?

Division of assets as part of a divorce settlement (equalizing the equity of the spouses) is not taxable to the receiving spouse or deductible by the paying spouse.  But that's not "compensatory damages" so either you are using the wrong terminology or you are talking about some other kind of payment that I don't understand.

[berto6314]

My question should read: How does/would the IRS treat a spouse who receives (husband) a lump-sum payment for spousal support in a divorce action?

[Rainman12]

General rules:
1) Spousal support is considered to be alimony Unless the agreement specifically states that it is Not alimony.
2) Alimony is a deduction for the payer, and taxable income to the person being paid.
3) Income is taxable in the year which it is transferred, regardless of what year(s) it was for.
Thus, per your clarification (and pending further info), husband would owe tax on the entire lump sum when received, and other spouse would have a corresponding deduction for the same amount.

[Opus 17 · Accepted solution]

As I suggested above, it will depend on how it is worded.

If it is specifically worded as spousal support, maintenance or alimony, then it is taxable to the recipient and deductible to the payer in the year paid/received.  Even it is a lump sum instead of periodic payments.

However, in some cases the parties may agree to designate support as "not alimony" and then it is not taxable or deductible.

Any money part as part of an equitable division of assets is not alimony and is not deductible or taxable.

It may come down to the specific wording in your agreement or court order.