Is one time final all inclusive marital settlement/settlement paid deductable from my taxable income.Even if i paid it from my INR accound in india,is it still deductible

[sarang85]

Is one time final all inclusive marital settlement/settlement paid deductable from my taxable income.Even if i paid it from my INR accound in india,is it still deductible. Please advice

[Critter]

No ... settlements due to divorce is not a deduction even if it comes out of a retirement account unless it was due to a QDRO ... ask your attorney about this option to see if it is available to you in this situation.

[Opus 17]

There are two kinds of payments in divorce, property settlements that divide up the marital assets, and alimony or spousal maintenance.

Property settlements, which might include cash, property, investments, and other things, that equalize the two spouses, are never tax deductible by the payer and are never taxable by the recipient.

Alimony or spousal maintenance is taxable income for the recipient and is a tax deduction for the payer.  This can include alimony that is paid as a lump sum instead of as monthly payments.  However, it is also possible that a divorce agreement will say "these payments are designated as not alimony for tax purposes" which makes them not deductible and not taxable, even if they are basically alimony.

So a one-time lump sum payment might be an asset settlement only, or it might be partly an asset settlement and partly a lump sum alimony.  And if it is partly lump sum alimony, that part of it might be taxable to the recipient and deductible by the payer unless the divorce order says it's not.  

The bottom line is that it depends on your exact divorce order, read it carefully and consult your attorney if you are unclear.

And if the payment is partly taxable to the recipient and tax deductible to the payer, it doesn't matter what kind of account the money comes from or where the bank is located. 

Alimony is discussed in IRS publication 17, chapter 8. https://www.irs.gov/publications/p17/ch18.html

Also Publication 504 on divorce. https://www.irs.gov/uac/About-Publication-504

[sarang85]

HI Opus, thanks for the answer. I would like to further know if i can get tax deduction.  I am a foreigner working in US and paying taxes in US only.  But my spouse is in India and I am going to pay one time payment in India. Can i still get the tax deduction in US. Please advice

[Opus 17]

It depends on your type of visa and whether you pass the substantial presence test.  If you are considered a US resident for tax purposes, either because of your visa type or because of your length of residency, you must file US form 1040 tax return to report and pay tax on your worldwide income.  In that case, you can take a text deduction for alimony paid in India assuming that it is alimony and not a property settlement.

 However, if you are a nonresident, either because of your visa type or because you do not pass the substantial presence test, then you file a form 1040NR nonresident tax return, and you only pay income tax on your US income and you can only deduct US deductions.

[Nursedaryl]

Alimony payments will fall under new tax rules starting in 2019. ... Under the new regulations, the individual who pays alimony to an ex-spouse will no longer be able to deduct those payments. And the recipient of the money will no longer pay taxes on that income.Aug 14, 2018

[scottsinn69]

So, in my divorce decree, I paid the mortgage payments for 4 years.  At the end of that time, my EX was to assume the mortgage and she got the home.  She also had to pay me $15,000 prior to assuming the home.  Is this $15,000 taxable?  Thanks in advance..

[MonikaK1]

No, as long as the payment was made as part of the terms of the transfer of property pursuant to a divorce, it would not be taxable.

Generally, no gain or loss is recognized on a transfer of property from you to (or in trust for the benefit of):

• Your spouse, or
• Your former spouse, but only if the transfer is incident to your divorce.

This rule applies even if the transfer was in exchange for cash, the release of marital rights, the assumption of liabilities, or other consideration.

Exceptions to nonrecognition rule

This rule doesn’t apply in the following situations:

• Your spouse or former spouse is a nonresident alien.
• Certain transfers in trust, discussed later.
• Certain stock redemptions under a divorce or separation instrument or a valid written agreement that are taxable under applicable tax law, as discussed in Regulations section 1.1041-2.

See IRS Publication 504 for more information.