A fee award is "expenses paid by another," so it is gross income for federal taxation purposes, the U.S. Tax Court says in Young v. Commissioner, T.C. Nos. 20435-97 & 21489-97, 25 Fam. L. Rep. (BNA) 1506 (8/20/99).
This was money the taxpayer never saw; her ex-husband transferred land to her to satisfy both his property division obligations and a fee award, and her lawyers were paid directly out of the land's sales proceeds by the settlement agent. Nonetheless, she was obligated to pay her lawyers' bills, and the ex-husband did it for her, so that amount is gross income. Unlike alimony, of course, it presumably is not excluded from the ex-husband's gross income, either. This could be very significant in cases that go on for several years, where the legal bills grow to be larger than the parties' annual incomes.