Schwening v. Comm'r

(1) In general. -- The term "alimony or separate maintenance payment" means any payment in cash if --

(A) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument,

(B) the divorce or separation instrument does not designate such payment as a payment which is not includible in gross income * * * and not allowable as deduction under section 215,

(C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, *9 and

(D) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse

Both parties agree that petitioner's payments to his ex-wife satisfied the requirements set out in section 71(b)(1)(A), (B), and (C). The parties do not agree, however, whether the requirement to make payments would have terminated in the event of petitioner's ex-wife's death. See sec. 71(b)(1)(D).

Although section 71(b)(1)(D) originally required that a divorce or separation instrument affirmatively state that liability for payments terminate upon the death of the payee spouse in order to be considered alimony, the statute was retroactively amended in 1986 so that such payments now qualify as alimony as long as termination of such liability would occur upon the death of the payee spouse by operation of State law. Hoover v. Commissioner, 102 F.3d 842, 845-846 (6th Cir. 1996), affg. T.C. Memo. 1995-183. If the payor is liable for any qualifying payment after the recipient's death, none of the related payments required will be deductible as alimony *10 by the payor. See Kean v. Commissioner, 407 F.3d 186, 191 (3d Cir. 2005), affg. T.C. Memo. 2003-163.

Here, the final orders do not provide any conditions for the termination of the payments to petitioner's ex-wife other than the operation of time and a minor child reaching the age of majority; some courts have held that "payments are not considered alimony to the extent that the divorce or separation instrument fixes a sum of money as child support, or provides that the payments are reduced on the happening of an event related to the child, or at a time associated with such an event." Kean v. Commissioner, supra at 192 (Emphasis in original).

Because the final orders do not expressly provide for the termination of petitioner's payments in the event of his ex-wife's death, we look to Colorado State law to resolve the issue. See Morgan v. Commissioner, 309 U.S. 78, 80-81 (1940); see also, e.g., Kean v. Commissioner, supra at 191; Sampson v. Commissioner, 81 T.C. 614, 618 (1983), affd. without published opinion 829 F.2d 39 (6th Cir. 1987); Berry v. Commissioner, T.C. Memo. 2000-373 (stating: "Although Federal law controls in determining [the taxpayer's] income tax liability * * *, State *11 law is necessarily implicated in the inquiry inasmuch as the nature of [the payor's] liability for the payment" was based in State law), affd. 36 Fed. Appx. 400 (10th Cir. 2002).

Petitioner contends that the intent of the final orders was both to provide for the deductibility of his payments and to comply with Colo. Rev. Stat. 14-10-122(2) (2008), the Colorado rule clarifying that the obligation to pay future maintenance terminates on the death of either party. Petitioner testified that his ex-wife also agreed that the payments made to her would be deductible to him. However, Colo. Rev. Stat. 14-10-122(2) speaks to "future maintenance", not "family maintenance", and it is the latter that is the relevant term in the final orders. Further, because the final orders' provision clearly deals with, at least in part, child support, we are unable to ascertain what portion of petitioner's payments might have been for spousal support and what portion was intended to provide support of the couple's children. Compare sec. 71(c) (explaining that child support is not "alimony") and Colo. Rev. Stat. 14-10-122(3) (explaining that child support payments do not terminate upon the death of a parent obligated *12 to support the child); See also Colo. Rev. Stat. 14-10-122(2).

What we can ascertain is that the final orders contain a provision that calls for petitioner to provide unallocated support through monthly payments to his ex-wife. Thus, if the unallocated support payments would terminate upon petitioner's ex-wife's death, petitioner's payments would be considered alimony. If not, then we must sustain respondent's determination.

Petitioner argues that any portion of the payments providing for child support would terminate in the event of his ex-wife's death because petitioner would then become the custodial parent. Unfortunately, as logical as that argument might seem, the law does not operate that way. Child support is expressly not "alimony". Sec. 71(c).

The Court of Appeals for the Tenth Circuit has explained that, under Colorado law, unallocated payments of temporary maintenance and child support do not terminate upon the death of the payee spouse and are thus not deductible as "alimony". Lovejoy v. Commissioner, 293 F.3d 1208, 1211 (10th Cir. 2002), affg. Miller v. Commissioner, T.C. Memo. 1999-273. In the absence of a different interpretation from the Colorado Supreme Court, Lovejoy*13 is both controlling and on point.

For the reasons discussed above, we sustain respondent's determination that petitioner's payments made to his ex-wife in 2004 did not satisfy the statutory requirements of section 71, and, accordingly,

Decision will be entered for respondent.