If my ex gets part of my military pension, and the State Auditor says I have to pay taxes on her share, can that be right?

2023-07-16T23:57:14-04:00

After I retired from Active Duty, I got divorced in Oregon. My ex gets a percentage of my pension via a qualified domestic relation order (QDRO).

But DFAS can’t garnish the full amount of her percentage, because the state also garnishes that check for spouse and child support.

So, I pay my ex directly for the amount DFAS can’t garnish. It’s her money, her share of the pension.

Each year, HR Block does my taxes and counts the amounts I pay directly to her as tax deductions since it is her money but it comes to me first. They list it as alimony for lack of another place to put it.

The state audited me for my 2020 taxes and claims I can’t deduct those direct payments to her because they are a non-deductible division of property. Based on that they want to charge me back taxes.

But my pension is income. And my ex’s share counts as income for her on her taxes.

This same state counts the pension as income when determining child support. So, since I’m just paying her what’s legally her income, why can’t I deduct it? Has anyone else been through this? It may be divided as property, but it's still income.

I'd bought HR Block's audit protection and they don't want me to talk directly to the auditor; they want to handle it, but I am worried about how that is going.

The Uniformed Services Former Spouses’ Protection Act says that retired pay as property payments are “considered taxable income to the former spouse. DFAS is required to issue the former spouse a Form 1099-R each year reporting the former spouse’s portion of retired pay. USFSPA retired pay as property payments are also subject to federal income tax withholding (FITW).”

It seems pretty cut and dry to me, and HR Block has been deducting these payments without question. Anyone got a similar experience?

Response by Cpl Vic Burk made Jul 17 at 2023 7:59 AM

2023-07-17T07:59:31-04:00

MSgt Matthew Cates I don't have that issue since I've never got a divorce but what I would do is, forget HR block and go see a certified public accountant and file an amended return if necessary. They will be much more versed in this stuff than HR Block. Good Luck Brother.

Response by COL Randall C. made Jul 17 at 2023 10:23 AM

2023-07-17T10:23:15-04:00

Completely agree with Cpl Vic Burk on this - you need someone that is qualified to give advice on this (Tax attorney, CPA, etc).

However, I did dig these articles* up in a quick search that might impact your situation. Starting 1 JAN 19, there were changes about the tax deductibility of spousal support payments which apparently affect any divorce or separation agreement executed after 31 DEC 18. If that cutoff applies to you, that may be the reason or the IRS might not be tracking if it happened before the cutoff date.

Again - pure speculation on my part (that qualified advice thing). Can't you talk to the WatchGuard individual handing your case?
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* https://www.courts.oregon.gov/programs/family/marriage/Pages/SpousalSupport.aspx
* https://www.irs.gov/taxtopics/tc452

Oregon Judicial Department : Spousal Support : Divorce, Separation, Annulment : State of Oregon...

Response by Patricia Overmeyer made Jul 18 at 2023 7:01 PM

2023-07-18T19:01:23-04:00

There are some issues here which H&R Block doesn't understand, which is why they screwed up your income tax return. You need to see a tax attorney that is versed in military retirement because the IRS will be more receptive to the tax attorney than H&R Block.
There are several issues, but let us start with the first one. When was your divorce? If you divorce was prior to December 31, 2018, then spousal maintenance (alimony) is taxed at the receiving spouse's rate and is a tax deduction to you. After that date, then spousal maintenance is not taxable to the receiving spouse. If you were divorced prior to December 31, 2018, then DFAS should be sending your spouse a 1099 tax form for the amount of spousal maintenance that they sent her for the entire year. If they aren't, then there is not much you can do to get DFAS to send out the proper forms (been there, sat on hold for a couple of hours, didn't get any satisfaction for my clients). More on this later.

Second: Child support is not taxable to the receiving parent nor is it tax deductible for the paying parent. There should be a section within your order that sets out which parent claims the child for state and federal tax purposes each year (this will depend on the state and not on federal laws). If you are to claim the minor child in even years, then you get your former spouse to sign the required documents to transfer the tax deduction to you for that year.

Third: You are correct in that DFAS will not take more than a certain percentage from your military retirement if there is already an IWO (income wage withholding order) for spousal maintenance and child support. There are federal laws, as well as DoDFinRegs which limit how much can be deducted from your retirement pay. I am figuring that there is an IWO since federal law requires state courts to collect child support from employers through an IWO. Since that appears to be the case for you, then DFAS will not send your spouse a 1099R as they are not paying her any portion of the retirement which was ordered to be paid to her. Instead, they are paying her the required monies as set forth in the IWO (which can only be child support, spousal maintenance and any court ordered payment on arrears of either). You are required to file the 1099R with the IRS. Why H&R Block couldn't figure this out is that they don't understand these complications (hence get your ass to a tax attorney when dealing with the IRS).

Fourth: Circling back to the DFAS not sending out the proper forms for the spousal maintenance. If you were divorced prior to December 31, 2018, then DFAS should have sent out the 1099 spousal maintenance form to your ex. If they did, then this was properly reported by them. Thus, H&R Block stating you were paying spousal maintenance and taking it off your taxes was actually incorrect. You were paying retirement benefits, not spousal maintenance out of your pocket. And this is probably what triggered the IRS audit.
If you were divorced after December 31, 2018, then you are still in the same situation but a different reason. After December 31, 2018, spousal maintenance was no longer tax deductible to the payer or taxable to the recipient. So if H&R Block filed a spousal maintenance claim for a deduction, they were incorrect in doing so.

Fifth: Gather up a copy of your divorce decree (including any modification of child support orders), all of your tax returns filed since you were divorced, a copy of the IWO (probably have to get that from the court), a copy of every check which was sent to your ex for her portion of the military retirement. and any other documents which you have received from DFAS regarding their decision not to deduct your ex's military retirement from your retirement pay. Take these to a tax attorney. Do not rely solely on a CPA as they cannot represent you in a tax audit to the same extent that a tax attorney is able to do so.

Best of luck to you!

Response by CPT Private RallyPoint Member made Jul 22 at 2023 4:32 PM

2023-07-22T16:32:03-04:00

That is a good question. I will be in this boat soon. You should read this. It looks like that persons owns that share of your pension and is responsible for the taxes on it.

https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/pension-payments-to-ex-wife-taxable-income%3B-no-refund-allowed/1n9st

Tax Notes Research

Tax Notes is the first source of essential daily news, analysis, and commentary for tax professionals whose success depends on being trusted for their expertise.

Response by SFC Kenneth Hunnell made Aug 6 at 2023 10:38 AM

2023-08-06T10:38:48-04:00

She has to show that income on her taxes. Both parties can't claim the same money as income. Apparently she beat you to the filing of the tax return. On your return you would show that you paid her the money, that money becomes income on her part.

Response by SPC Phil Ramos made Aug 21 at 2023 1:17 PM

2023-08-21T13:17:57-04:00

Divorces prior to 2019, the defendant's check has all the taxes withheld and then the Alimony garnished and the defendant gets to claim all that tax on the Alimony portion and it is refunded. The Plaintiff receives the Alimony and must claim that as income and then pay the tax. in 2019 it changed to where the defendant is responsible for the tax, even though the Plaintiff benefits from the Alimony. Now, the tax liability is figured into the settlement where it was not in the past.

Response by Richard Gould-Saltman made Aug 22 at 2023 1:16 AM

2023-08-22T01:16:58-04:00

Family law attorney here. Read Ms. Overmeyer’s comment, and then speak to a family law attorney in the state where your divorce was done. Ideally, it should be one with knowledge and experience handling uniformed services personnel family law issues, but they may be tough to find.

Response by SPC Vonnie Jones made Aug 24 at 2023 6:50 PM

2023-08-24T18:50:57-04:00

Wow what an eye full! This one for someone who specializes in a mess lol. Not trying to minimize your situation, but the best advice you can get from RallyPoint is get a CPA or a tax attorney. H&R block works ok for uncomplicated tax only. Your tax issue need to be handled by someone who knows all tax laws, and so many laws have changed the last couple of years. There are some Vet groups that can give you a little guidance, but don't hesitate to pay a good lawyer. IRS and motor vehicle are two places you want to get it right at! How do I know? I've been in trouble with both. Seek perfessional help so you can sleep at night! Best wishes

Response by SSG John Smith made Aug 24 at 2023 7:09 PM

2023-08-24T19:09:33-04:00

Were you married the whole time you were in the service? I know she cannot get any money if it is disability payment. If you get classified as disabled, say 50%. Then her portion would be cut in half. Just like if you spent 20 years in the service and were only married for ten of those years, then she would be only entitled to half. But if you want to keep it like it is, then issue her a 1099-R and she has to declare it as income. When I got divorced, I wrote off the amount as alimony and never got audited. You were smart to get the insurance. Let them handle it. By the way, I am 100% disabled and between my VA disability and SSAN, I get $6500 a month, TAX FREE plus full medical prescriptions, etc. I do not pay a dime. My blood pressure went up so they gave me a blood pressure machine. When the batteries get low, They mail me some. I am telling you this because it took me about 10 years to get to 100%. You should re-evaluate your situation. You can write to me at [login to see] if you have any questions on what to do. GOOD LUCK

Response by SFC Kenneth Hunnell made Aug 25 at 2023 5:34 AM

2023-08-25T05:34:42-04:00

The key word is the " State Auditor".
This is a state tax return not federal. The state where the divorce was decreed more than likely has different look at it concerning the state taxes being paid. It has nothing to do with the federal return

Response by SrA Van Deen made Aug 25 at 2023 6:35 PM

2023-08-25T18:35:29-04:00

That is an interesting problem that you have. However, there plenty of factors that can impact your situation.

How long wheee you with her?
In what state did you divorce her?
Do you have to pay her indefinitely?
Are currently collecting any Va disability, or plan to file for VA disability in the future?

Response by MSG Gary Eckert made Aug 26 at 2023 9:07 AM

2023-08-26T09:07:10-04:00

You are going to be out of luck In Oregon retirements are taxable to the recipient and non taxable to the ex. They are considered a settlement of marital property rather than income to the ex. This rule applies to money in excess of what DFAS withholds under the spouse protection act. For money she gets under the act she will receive a 1099R and the amount of your 1099R lowered by that amount. They should also amend your federal return because it is wrong, too. Block should pay the tax under their audit guarantee and will will you a 1099 for the amount they pay since that amount is taxable income for you.

Response by Charles Shaw made Sep 7 at 2023 8:10 AM

2023-09-07T08:10:01-04:00

Let me first say not a military pension but a stste pension, and from Connecticut but I of course file federal taxes too.
My ex gets a percentage of NY pension also part of a QDRO. It is paid directly to her and does not cone through me. (It is in effect her "pension" money.) The amount is taken off what I receive as pension and she is responsible for all taxes. It IS NOT Alimony. Now that is the way QDRO's are written in my state. It is her share and I do not have to write a check every month. Can DoD set it up that way or are they not subject to State Court rules. But again, to echo the advice above, consult with a tax professional or the attorney who handled the divorce/QDRO.

Response by PFC Aaron Cox made Sep 20 at 2023 6:44 PM

2023-09-20T18:44:06-04:00

It's called bending over the ex. Is it right no. But it's how things work. I'm not even sure that there's a way to get around this. Tax laws allow you to give a one time cash gift to someone each year that is tax free for you and the person receiving it. You're allowed to write the full value of the gift off on your taxes. The problem that you have is that the payment is monthly not yearly. If you donate money to charities that write off can offset your tax liability. Keep receipts and records. I'm still looking into whether membership dues for service clubs (VFW, American Legion, DAV. Etc.) Can be written off on your taxes or not. As soon as I do. I will post it on the forum.

Response by SrA Bruce Banner made Sep 21 at 2023 2:35 PM

2023-09-21T14:35:54-04:00

Sounds like you need to file for VA disability as well. Since you did at least 20 years you'll be able to double dip and unlike pension disability compensation is tax free. You can get with VFW, DAV, or AL. I personally used DAV because they upped me from 30% to 100% in 2.5 years. God speed!

Response by PO3 G Paull made Sep 23 at 2023 8:54 PM

2023-09-23T20:54:12-04:00

Did you get “Peace of Mind” guarantee from H&R Block?
I believe for the child support portion, you DO have to pay tax on, not your ex. On the pension portion she receives, I believe the ex, not the taxpayer, is responsible for tax liability on that portion.
Go back to H&R Block with all your letters from the taxing authorities. Ask to speak to an Enrolled Agent (EA) and they may be able to help.
Try this before you lay out all that $$$ for a tax attorney.

Response by SSG Robert Pratt made Sep 23 at 2023 10:36 PM

2023-09-23T22:36:10-04:00

Some states consider retirement money as property and your wife gets her share of the "property". It is not considered income. My wife gets her share tax free but I get to pay taxes on the full amount.

Response by Rory Schultz made Sep 25 at 2023 1:10 AM

2023-09-25T01:10:31-04:00

You should have moved away from the State First before the divorce! Think about how many times she can marry then get their pensions and be living high off of it? It became very lucrative for some women! Especially in California.....

Response by SP5 Bill Merritt made Sep 26 at 2023 1:57 PM

2023-09-26T13:57:27-04:00

When this is over I'd have the tax attorney write Block and demand they reimburse your legal fees. My guess is Block would much rather pay you off than get into a long, messy, public argument about the compentency of their work.

Response by GySgt William Hardy made Sep 27 at 2023 8:42 PM

2023-09-27T20:42:46-04:00

You pay on what you earn, not what you pay out.

Response by 1SG Brian Adams made Dec 24 at 2023 9:20 AM

2023-12-24T09:20:22-05:00

Your DFAS 1099 should reflect your income that is taxable. The percentage you pay your ex should not be included on your 1099. If you are paying alimony as well, then Alimony can be deducted.
Best advice as others are stating, go to a tax pro. H&R Block is not the standard bearer....Good Luck

Response by SSG Robert Pratt made Feb 4 at 2024 9:32 PM

2024-02-04T21:32:58-05:00

The way it was explained to me (at least for Kentucky) is military pension is considered marital property and as such the ex gets her share.

Response by SGT Keith Smith made Feb 26 at 2024 2:34 PM

2024-02-26T14:34:24-05:00

Short answer is yes you have to pay the taxes on the money that is paid to you. If you then pay her directly then you are essentially handing her a gift and you will still have to pay taxes on it. For 10 years I have dealt with this and this is the attitude you’re going to run into with this so stop. Remember she gets a percentage of you disposable income. Disposable income is what is left over after all deductions including child support and spousal support. If she gets upset like my ex did then she needs to contact them and request in writing to not touch her portion of your pension. You can not do this because it is not your money legally it’s hers and you have no control over it. You should not be upset over this nor should you rejoice just let her know she needs to contact DFAS and work it out. I hope this helps though I am sure it is not the answer you hoped for by the way my ex is trying to sue DFAS over 10yrs of paying half of her own child support which I told her she was doing and informed DHS about as well. We can only do so much.

Response by SPC Gary Trudeau made Mar 31 at 2024 6:51 PM

2024-03-31T18:51:43-04:00

Yes my experience is similar. We were married 23 years when she filed for divorce. I’m a Vietnam vet, 100% disabled. The court awarded her 50% of everything. She has to pay taxes on what she receives from OPM but not from what she receives from me. She was not even part of my life when I was in the military or during the time of my first employer. The court didn’t care. Military veterans get a bad rap in divorce courts. Most veterans homes in this country a full of disabled veterans who are there because of divorce.

Response by SPC Matt Ovaska made May 12 at 2024 7:38 AM

2024-05-12T07:38:11-04:00

My friend went to Hawaii for R & R. to meet his wife. I asked him, "How did it go?" How did it go. He replied, "She had me sign my divorce papers." There was a gal in California that married a number of GI's before they left for Nam. She finally got caught cashing in on all the life insurance she collected.