How to treat pension payments paid directly to spouse before QDRO processed

[michaelp5792]

My ex and I separated in 2019.  Under the separate maintenance agreement & decree, she receives both alimony and also half of my civil service government pension (as an equitable division of property). I pay the alimony to her directly, and since our decree was issued after 2018, it is not deductible.  A court order was prepared (like a QDRO) to split the federal pension, so that she'll be paid her half directly by the government and get her own 1099-R. The agreement & decree provided that "Until the QDRO is fully executed with the Pension benefit being received by Wife through the QDRO, Husband shall transfer to Wife $2,100 each month." This $2,100 was an estimate of what her half of the pension would be, which was calculated under a complicated formula. The federal government took 6 months to process the QDRO!  I directly paid the ex half of my pension for six (6) months until the QDRO finally processed (Jan - June).  My 1099-R from the government has been issued, and shows 3/4 of my original pension entitlement (so, hers will be for 1/4, even though she got half!). In other words, OPM prepared the 1099-R to reflect only the payments to my ex that they sent her directly, without any provision for the payments I made to her before the QDRO was processed. What about the six (6) months I paid directly to the ex for Jan thru June?  Can I deduct those payments to her? If so, how do I reflect them on my tax forms? Also, can I give her a 1099 for the half of my pension I paid directly to her those six (6) months? What type of 1099? It seems crazy that I should have to pay the tax on 6 months of her pension income just because they were slow to process the QDRO and I had to pay her directly.

[Cynthiad66]

This is how you can do this in Turbo Tax

1) You would need to report the full amount on his tax return to match the 1099-R you received.

 If the amount you paid her is not designated as alimony in your divorce documents he can report it in TurboTax as Less Common Income> Other Reportable Income.  In that section you can put in a description and the amount as a negative amount.

2) She can file the income you received for the first 6 months, as a substitute 1099-R in the Retirement Plans Section of TurboTax.

OR

You can petition the plan administrator to issue a corrected Form 1099R.  You can also enter the amounts that are relative to you and print and mail the return with the documentation to support your return.  It would help if you can show that your Ex has been made aware of the amount and has reported the amount as receiving a 1099R.  You can also, make an agreement with your spouse to just include the amount on your return and have her reimburse you directly for the amount of taxes relative to the inclusion of income that is not yours.

An approved DRO is known as a Qualified Domestic Relations Order (QDRO). Under federal laws, qualified plans like defined benefit plans, ESOPs, 401(k) plans, and profit-sharing plans require a QDRO in order to distribute benefits to an alternative payee. Once a DRO has been determined to be qualified, notification of approval is sent to the attorney who in turn submits their final revisions to the court for a judgment.

An official copy of the court’s judgment is passed on to the plan administrator to begin processing the retirement plan benefit. A QDRO is a mandatory order that must be followed to the teeth and honored by the employee’s company or plan administrator. However, in the event that a DRO is erroneously judged as qualified, the QDRO can be taken to court to be corrected or changed.

[michaelp5792]

Thank you for the guidance!  

[hammackl]

Did this answer work? How did you do it? I'm in the same situation, only worse. I've been paying a court ordered division of my military pension for 16 months. I didn't realize it wasn't alimony, so I thought it wasn't deductible. When I finally found out, I started the QDRO process, which is supposed to take effect in February. Meanwhile, I've paid about $15K in taxes I didn't owe. Can I amend my 2019 and 2018 taxes to deduct (or subtract from my income) the amount I paid to my ex-spouse?

[DianeW777]

Yes, the answer may work for your situation. In your question you state "I started the QDRO process, which is supposed to take effect in February."  The key is when the official start date, as indicated by the court documents, was set to begin.  Any payments you made as required by the documents, would be considered the income of your ex-spouse.  The remainder would be your taxable income.

There is one more option which is to nominee the portion that belongs to your ex-spouse by using the information below.  The nominee action is a normal process.  The red copy should go to the IRS, but they won't turn it away if you send a black copy. 

There are steps here for you to review if you choose.

Nominee returns. 

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list yourself as the payer and the other owner, as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

You can go to the IRS website using the links below for the necessary forms. 

• Form 1096-Transmittal (2018)
• Form 1096-Transmittal (2019)
• Form 1099-R (2018)
• Form 1099-R (2019)

This clearly indicates the income to be reported by each.  You should use the instructions noted, and placed here for your convenience, to remove the income from your return that belongs to your ex-spouse.

• In TurboTax use Less Common Income> Other Reportable Income.  In that section you can put in a description  (1099-R QDRO portion) and the amount as a negative amount (example -200).