Question

Divorce awarded 50% share of stock grant and each party was 100% responsible for their tax liability. Can one party issue a 1099-MISC to transfer tax liability of award?

Forum|Forum|4 years ago
January 31, 2022
1 reply
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Full stock grant was sold by company and paid as income to first party of divorce. Tax withholding on the full amount was deducted from award through first party's payroll check. 50% of grant was paid in cash by the first party to the second party of the divorce. First party wants to deduct amount of payment from his income and pass tax liability to second party. How is this done?

TurboTax Deluxe Online

M

MAK70

No, this would be a property settlement or possibly alimony, in either case it is not deductible.

You can't deduct alimony or separate maintenance payments made under a divorce or separation agreement (1) executed after 2018, or (2) executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments you receive under such an agreement are not included in your gross income.

D

dnachmanatx-gmaiAuthor

Thanks for your response.

Just to be clear, the divorce decree states that if and when the award was granted (wasn't supposed to be until 2023, but was moved up due to sale of company) that each party would be 100% responsible for their tax liability of the award. I was told at the time that tax liability could be transferred using a 1099-MISC. You are saying that the tax advice I received and language placed in the divorce decree was wrong? Thanks again for your help.

G

GeorgeM777

To follow-up on the response from @MarkK1101, the situation you described appeared to meet the IRS' definition of alimony and/or separate maintenance, and as such, the payment to the contra party is no longer deductible.

The IRS defines a payment as alimony or separate maintenance if all the following requirements are met:

The spouses don't file a joint return with each other;
The payment is in cash (including checks or money orders);
The payment is to or for a spouse or a former spouse made under a divorce or separation instrument;
The spouses aren't members of the same household when the payment is made (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.);
There's no liability to make the payment (in cash or property) after the death of the recipient spouse; and
The payment isn't treated as child support or a property settlement.

Based on your description, it appeared that the transaction you wish to effect could fairly be described as satisfying the above requirements.

However, not all payments made in connection with a divorce are considered alimony or separate maintenance. In this regard, the IRS has stated that alimony or separate maintenance does not include the following:

Child support,
Noncash property settlements, whether in a lump-sum or installments,
Payments that are your spouse's part of community property income,
Payments to keep up the payer's property,
Use of the payer's property, or
Voluntary payments (that is, payments not required by a divorce or separation instrument).

Here is a link to the IRS webpage that discusses the tax issues regarding alimony and separate maintenance which you might find helpful.

Alimony and Separate Maintenance

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