Spousal Support is Not Always Deductible When Liability Extended Beyond Death

Husband and Wife entered into a Marital Settlement Agreement predicated upon their ultimate judgments of divorce.  If the couple were to enter into a divorce, the provisions of the agreement would be fully incorporated into the final divorce judgment.

The agreement included two provisions regarding their respective rights upon death of the other party with respect to the property of the other.  This included an interest in past, present and future spousal support obligations accepting any obligations set forth in the agreement itself.

The agreement provided that it was binding and shall inure to the benefit of the parties and their heirs except as specifically excluded by the agreement.  Any terms not met would be an obligation of the decedent spouse’s estate.

The agreement obligated the husband to provide a sizeable sum in escrow to his wife upon the entry of a divorce judgment.  This amount would be used to purchase a condominium for her prior to the divorce; the unused balance of the escrow account was to be paid to the wife after the divorce was final.  The agreement also obligated the husband to pay the condominium fees prior to the final divorce judgment.

The agreement also required the husband to pay the wife’s attorney’s fees up to a set amount.

The husband paid as mandated by the agreement and attempted to deduct it as spousal support.  The IRS disallowed the deduction and found that the Marital Settlement Agreement which had been fully incorporated at that point into the final divorce judgment did not support his claim that it was spousal support giving him the benefit of the deduction for those sums paid.  The IRS further found that the agreement, by its terms, caused the escrow account to be an obligation account that would not cease upon the death of the wife and as such was disallowed.  Spousal support cannot continue after the death of either spouse as a matter of law.