IRC Section 71 May Impoverish Children, Endanger Ex-Wives, and Disrupt Federalism

Family Court Review, Vol. 46, p. 574, 2008

U of Colorado Law Legal Studies Research Paper No. 08-27

26 Pages Posted: 16 Oct 2008  

Michael Waggoner

School of Law

Date Written: October 15, 2008

Abstract

The Internal Revenue Code provides that alimony will be deductible to the payor and taxable to the payee. Although this treatment may seem contrary to the payee's interest, compared to making the payments non-deductible and nontaxable, it can increase the payee's after-tax income. The payor's deduction will allow larger payments at no after-tax cost increase; if the payee is in a lower tax bracket, then even after paying taxes the payee will have more resources. Because this favorable treatment of alimony does not apply to child support, children of divorce are poorer. Nor does the favorable treatment apply to lump-sum payments, making this option less generous, even though many states have phased down the grant of alimony. Because the definition of alimony requires that it end with the payee's death - to protect the treatment provided for lump sums - the tax system is on the wrong side of the issue of violence against ex-spouses (typically the ex-wife). The article proposes extending to other similar payments the favorable tax treatment now provided for alimony.

Keywords: federal income tax, IRC section 71, divorce, marriage dissolution, alimony, child support, property settlements

JEL Classification: J12, D31, D60, I31, K34

Suggested Citation

Waggoner, Michael, IRC Section 71 May Impoverish Children, Endanger Ex-Wives, and Disrupt Federalism (October 15, 2008). Family Court Review, Vol. 46, p. 574, 2008; U of Colorado Law Legal Studies Research Paper No. 08-27. Available at SSRN: https://ssrn.com/abstract=1285145

Michael J. Waggoner (Contact Author)

School of Law ( email )

401 UCB
University of Colorado
Boulder, CO 80309
United States
(303) 492-3088 (Phone)
(303) 492-1200 (Fax)

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