Kevin Larievy and his ex-wife separated in 2004. Hoping to keep it amicable, they chose not to get attorneys involved and crafted their own separation agreement. Pursuant to their purely oral compromise, Larievy agreed to pay his ex-wife $2,605 per month for living expenses and support of their child. Apparently, the two parties had an understanding as to how much of the payment constituted alimony and how much constituted child support, but the allocation was never memorialized in writing.
Larievy made the required payments through 2008, when the divorce was finalized. As part of the final divorce documents, Larievy was to pay $1,400 of monthly alimony to his ex-wife commencing on December 1, 2008 and continuing until death of either party.
On his 2008 tax return, Larievy deducted $19,200 of the payments made to his former spouse as alimony. The IRS allowed a deduction for the $1,400 that was paid pursuant to the finalized divorce agreement dated December 1, 2008, but none of the payments that preceded December 1st.
The Tax Court sided with the IRS, citing I.R.C. § 71, which provides that in order for a payment to be deductible as alimony, it must meet four conditions:
1. The payments must be received by (or on behalf of) a spouse under a divorce or separation agreement;
2. The instrument must not designate the payment as a payment which is not includible in the payee’s gross income;
3. The payor and payee must not be members of the same household; and
4. The payment obligation must end upon the death of the payee.
Fatal to Larievy’s cause, however, was I.R.C. § 71(b)(2), which defines a “divorce or separation agreement” as a written agreement. According to prior case law, I.R.C. § 71 requires a written agreement because Congress was interested in requiring a clear statement of the separation agreement so it could be determined with certainty the amount of payments to be included in the wife’s income and the allowable corresponding deduction available to the husband. [i]
Because Larievy’s agreement with his ex-wife was not in writing — despite the fact that the two had mutually agreed on the amount of each payment that represented alimony — Larievy was not entitled to any deduction prior to those made pursuant to the final divorce decree in December 2008.
[i] Garner v. Commisssioner, T.C. Memo 1973-79