Forbes & "Above the Law" get one wrong -- there's no tax on divorce settlements
June 08, 2018
"Examples of settlements facing tax on 100% include recoveries ... from your ex-spouse for claims related to your divorce or children," tax lawyer Robert Wood wrote in Forbes recently. "Defamation, financial fraud, divorce, malpractice, false imprisonment — clients will be paying taxes on 100 percent of their recovery on all of these." -- Joe Patrice blogged at Above the Law.
Nope. What you get in a divorce is not taxable as income, and that is absolutely unchanged in the new tax act. Tax Code Sections 102 and 1041 ensure that. They do so by treating a divorce settlement as a "gift", which is mostly wrong, archaic, and insulting to women, but it gets the job done. As the IRS's guide to all things divorce-related, Publication 504, puts it,
"Property you receive from your spouse (or former spouse, if the transfer is incident to your divorce) is treated as acquired by gift for income tax purposes. Its value isn’t taxable to you."
The latest edition of Publication 504 is from before the 2017 tax reforms, but again, the relevant parts of tax law weren't changed at all.
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