PARTIAL PENSION DISTRIBUTION TO EX-SPOUSE

[Edward]

Retired Fireman now drawing pension. Divorce decree states that he is to pay $6000.00 of the pension to his ex-spouse annually. Fire Dept dosen't distribute funds nor do they send 1099 to her so how do I handle? I was thinking I would attach a statement to Line 16b of his return explaining the 6000.00 difference. Sound OK? I suspecdt that she would also pick up the amount on line 21? or 16b? Appreciate any replies.

[JohnH]

You probably need to read up on QDRO's.

I handled one for a client a few years ago - don't remember all the details but this one was messy.

[kcjenkins]

One question, who does handle the payments? That should be the trustee for the plan, and that is who issues 1099Rs. AND THAT IS WHO SHOULD BE PAYING HER. Not him.

If it is not actually a Qualified Domestic Relations Order, issued to the pension plan by the JUDGE, then it is not exempt on him, nor taxable to her. Your client should never touch the funds that go to her, they should go from the trustee of the plan to her, based on a QDRO, to achieve the result he is expecting. If his attorney dropped the ball on this, he's got a good malpractice claim against his attorney, but the IRS is not going to care. Best he can do is make his attorney go back and get the QDRO signed by the Judge, for future payments, and perhaps make the attorney pay him for the extra tax he has to pay on this year's taxes. Better get cracking if 09 is not to be screwed up too.

[mcb39]

There was a lot of posting regarding QDRO on this board last spring when I was going through a very messy deal with a client. Doing a Search for QDRO might give Edward some answers.

For those of you who remember my case, you might be interested to know that ex-husband is still sitting in County Jail awaiting trial. This will be two years in April. My client finally got her divorce in Feb which was just over one year after the husband's arrest and her filing for divorce. Because they were court ordered to file MFJ, we did pay the tax, but not the penalty. We are quite sure that her attorney may have messed this one up.

[Jack from Ohio]

Is the $6,000 monthly considered alimony?

If so, claiming it as such will accomplish the same tax effect as it being sent directly to her by the trustee of the pension.

[jainen]

>>he's got a good malpractice claim against his attorney<<

I don't understand why it has become fashionable for tax professionals to say things like "they should go from the trustee of the plan to her, based on a QDRO." How do we know what the issues in the divorce were? The way the pension is to be split is simply one of the negotiable terms of settlement. You might not even want a QDRO, if for example the spouse is in a higher tax bracket and can make a concession about something else.

Sure, sometimes a lawyer might fail to consider the after-tax effect, but there is nothing in the original post to suggest that at all. It doesn't even say the client expects to avoid tax. Report the pension income as shown on the 1099, and determine whether or not the $6000 counts for alimony.

[kcjenkins]

Reread Edward's post. Clearly he thinks his client should avoid tax on it.

[jainen]

>>Clearly he thinks his client should avoid tax on it<<

I understand what Edward thinks. But he doesn't mention what his CLIENT thinks. Or what his client was thinking when he signed the settlement agreement.

[Edward]

Thanks for all the input - believe me it's been very helpful. It looks like a hornets nest so I'm telling client to go

back to his former taxpreparer. Thanks alot.....

[JohnH]

Maybe you now know why the former tax preparer IS the former tax preparer - he chose to be.