Maintenance requires is tax planning and for that reason it needs to be structured correctly. When the person paying maintenance is in a higher tax bracket than the person receiving the maintenance, in essence the IRS should end up subsidizing part of the payment; For example:
He makes 25,000/month and she has no income
He pays her $9,000 months which after taxes actually costs him $5000
He has a high tax savings because of his high income
Wife will pay $2000 in taxes because of her low income
The additional $2000 is a subsidy from the IRS
Internal Revenue Code 71 discusses maintenance requirement of the 7 D’s
Dollars (not services to or on her behalf)
Designation (does not say non taxable)
Distance (do not live together)
Dependents (not child support)
Dual (no joint tax return)
As an example, if there is a provision that Husband pay Wife’s attorney $10,000 this could be stretched to fit into the IRS definitions of maintenance, however, the Wife would have to claim it as income. provision that H pays W’s attorney $10,000
If Husband pays voluntarily and then those payments are incorporated into an order retroactive to the date it started, the earlier payments were not made pursuant to order so would not be considered maintenance payments by the IRS
If Husband is ordered to pay the mortgage and taxes on marital home as Maintenance for Wife which terminates on his death and they own the home together and the loan is in their joint name, then a portion of the payments are made for his benefit so he should be able to take that portion as a deduction on his tax returns; shifting these deductions is also good planning.
Husband ordered to get life insurance policy naming Wife as beneficiary which will terminate on his death; -The premiums are deductible. if he names an alternate beneficiary in the event she dies before he does, this is not likely to be a problem for tax purposes.
H pays permanent maintenance until her death but then gets injured and he pays less – recapture comes into play and he will be in trouble – looks like a disguised property settlement by front loading – look at year two and three.