Divorce
Divorce
Posted on Jul 16, 2023
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?
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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?
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?
Divorce
Pension
Taxes
Posted 10 mo ago
Responses: 24
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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!
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!
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Patricia Overmeyer
MSgt Matthew Cates - So if DFAS is deducting her portion of the military retirement, but not the full amount? Did the decree state that it was a percentage of the gross or was it a fixed amount? If it is a percentage, then she shouldn't be receiving more than 50% if all of the military retirement was earned during the marriage. DFAS normally takes your gross retirement, deducts the SBP (if elected for the former spouse) and then makes the division of the retirement gross. Are you receiving a portion of the retirement as disability pay?
I don't know the state laws for your state, but the state auditor is incorrect in that it is "property" and thus not deductible. State laws do treat retirement as property to be divided in a divorce. However, if you have to pay the remaining portion because DFAS won't pay the full amount, then it is deductible. This is why you need to get a tax attorney to go over these issues. You may also want to go back to your divorce attorney to discuss the fact that you are paying taxes on her remaining amounts that you pay and she is not having to reimburse you for those taxes.
These are really complicated issues and there are a lot of veterans who find themselves in these situations. You may want to contact your local county or state bar to find if there are any tax attorneys who provide free consultations and/or reduced fees for services.
Best of luck to you!
I don't know the state laws for your state, but the state auditor is incorrect in that it is "property" and thus not deductible. State laws do treat retirement as property to be divided in a divorce. However, if you have to pay the remaining portion because DFAS won't pay the full amount, then it is deductible. This is why you need to get a tax attorney to go over these issues. You may also want to go back to your divorce attorney to discuss the fact that you are paying taxes on her remaining amounts that you pay and she is not having to reimburse you for those taxes.
These are really complicated issues and there are a lot of veterans who find themselves in these situations. You may want to contact your local county or state bar to find if there are any tax attorneys who provide free consultations and/or reduced fees for services.
Best of luck to you!
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Charles Shaw
Excellent advice. I have some experience with QDRO since I am subject to one. It is not considered Spousal Support but is their (share) of an earned pension. (Sidebar, there is a, strange to me, formula to determine the percentage.) In my experience it is paid direct to the spouse. The OP needs to find a tax lawyer and to make sure the money was not listed as alimony on the divorce decree. My ex's share goes directly ro her and the amount is not shown on my 1099R. She receives a 1099 from the government.
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SP5 Bill Merritt
After this is over I'd have your tax attorney write Block, explain where they screwed up, and demand they reimburse your legal fees. My guess is that Block would much rather pay you off than get into a long, unprofitable, public squabble about the competence of their work.
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CMDCM Larry Day
It is pitiful that only in the U.S. and only for Retired Military (Many that are Combat Vets) have to pay a spouse for the rest of their lives money deducted from the Retired Military Pay. 10 years of marriage for example and the ex spouse simply says they don't want to be married anymore to the Military Person and that is all it takes to get money for the rest of their lives. Then if the military person increases in rank after the divorce the military person is penalized again and the ex had nothing to do with increases in rank after the divorce. The FSPA IS A TOTAL disgrace to the military person who in most cases served in combat and sacrificed for this nation only to be DISRESPECTED upon retirement. This makes us sick and those civil servants in Government could care less. Was a disgrace.
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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.
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COL David Turk
Yea, H&R Block screwed up a trust account filing that I was the executor on. Good thing I caught it. Got that corrected by a CPA/tax guy before the IRS came calling.
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Charles Shaw
Good advice. And again, ues this is Connecticut experience. There is only one law firm thst deals with QDRO's for government pensions in the stste. Every law firm deals with them. They knew what to do so everything was accepted first shot with the State Pension Board
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Suspended Profile
I will never ever get married again! This marriage was more of a rebound after the love of my life and her twin sister were murdered by an illegal here who was drunk driving.....anyway a few years later I married...
It was back when I was much younger decades ago I married into the Wealthiest Banking Family in Brazil and there were things I saw and heard that really terrified me!!! It only lasted one year...that was enough. I never knew her family before hand and she kept it a secret until she couldn't anymore, but when time came to do the round robin...oh it was not good! I would rather refrain from naming names....but if you go watch early episodes of 60 Minutes and ACID RAIN, the clearing of the Rain Forest then you will get the idea. I won't go into details because this stuff was coming true and still is today... They had business ties to other world banking families, business ties to DeBeer and South African Mining, to a ton of Pharma Companies to research new medicines etc. They had bought off Politicians and were buying Amazon Jungle at a 1. dollar an acre that is 33 cents US back then. Anyway they clear cut, sold off the exotic hardwoods, burning off the brush, discovered Emerald, Gold, and so forth. Their plan was to make Brazil the next bread basket of the world ( They also owned ranches in Montana and Idaho ) so some areas were cattle, some were sugar plantations because they built chains of Ethanol Refineries etc. Built highways to make cities.... Well, I could tell that the family was not receptive to me AT ALL!!! She took me to all the relatives even in Europe, Germany, Israel, New York, cattle ranches....then back to Brazil. I could really sense the tension. So, she takes me to see an area of the Amazon they cleared and there was this old Indigenous Village with a small river by it. She is telling me all the family plans, how they are related by "family marriages" to other banking families worldwide and businesses etc to strengthen their financial ties worldwide (now I am feeling the hairs stand up ) and how the Amazon lands fit in their future plans...then she paused to see my reaction. I was getting very uneasy... I kind of looked around and very nervously with a cracking voice asked, where did all the villagers go, were they relocated? She got up, walked to the river and stepped knee deep just long enough for the splashing then she stepped out. 3 Piranha were attached to her calf, she then yanked them off and said, " Well, Nature has the perfect cure for all your ills!" I nodded then got up very quickly and headed back to the car and the driver took us back to the Mansion in Sao Paulo. Not a word spoken the whole time....I just stared out the window, I did not even look at her ( She was extremely stunning looking too) and I was near heart broken and truly terrified!! I went and packed my bags walked downstairs to the driver who was waiting and he drove me to the Airport. There was a lawyer already there with Divorce/Annulment papers at the gate. I signed them and GOT THE HELL OUT OF THERE!!!! I never saw or spoke of them or to them EVER AGAIN! I went to Uni, buried myself into my studies and worked, worked, and worked and just kept to myself. Many years later when I left Medical Research, went into art blah blah..I was featured on the TV. Then at a Black Tie Affair in Dallas at Ben E. Keith Corporation for contributions to Texas Historical Art blah blah blah but I happened to be seated to the very member of the DeBeer Family who I met in Brazil in biz with my ex wife's family. YOU TALK ABOUT A PUCKERED BUTTHOLE AND SWEATING BULLETS!!!! I was a freaking nervous wreck the whole time and each time I casually looked he had the most SHIT EATING GRIN on his face. GOD I had so many paranoid thoughts popping in my head!!! When I was called to accept the award, the spotlight hit me I was shaking like a leaf.....after that night I disappeared again from any spotlight kept out of sight. When I say I heard and saw stuff that was being planned....I am telling you that these kinds of people are so jaded so callous hearted, they even teach their children this attitude!!! They could walk over to a dying beggar in the gutter and snatch his last dollar and be gleeful over a dollar profit margin with no investment. And not give a rats ass about the beggar! That is how truly powerful and scary these kinds of families are. And the world thinks these are the good guys....These are the people WHO OWN GOVERNMENTS!!!
It was back when I was much younger decades ago I married into the Wealthiest Banking Family in Brazil and there were things I saw and heard that really terrified me!!! It only lasted one year...that was enough. I never knew her family before hand and she kept it a secret until she couldn't anymore, but when time came to do the round robin...oh it was not good! I would rather refrain from naming names....but if you go watch early episodes of 60 Minutes and ACID RAIN, the clearing of the Rain Forest then you will get the idea. I won't go into details because this stuff was coming true and still is today... They had business ties to other world banking families, business ties to DeBeer and South African Mining, to a ton of Pharma Companies to research new medicines etc. They had bought off Politicians and were buying Amazon Jungle at a 1. dollar an acre that is 33 cents US back then. Anyway they clear cut, sold off the exotic hardwoods, burning off the brush, discovered Emerald, Gold, and so forth. Their plan was to make Brazil the next bread basket of the world ( They also owned ranches in Montana and Idaho ) so some areas were cattle, some were sugar plantations because they built chains of Ethanol Refineries etc. Built highways to make cities.... Well, I could tell that the family was not receptive to me AT ALL!!! She took me to all the relatives even in Europe, Germany, Israel, New York, cattle ranches....then back to Brazil. I could really sense the tension. So, she takes me to see an area of the Amazon they cleared and there was this old Indigenous Village with a small river by it. She is telling me all the family plans, how they are related by "family marriages" to other banking families worldwide and businesses etc to strengthen their financial ties worldwide (now I am feeling the hairs stand up ) and how the Amazon lands fit in their future plans...then she paused to see my reaction. I was getting very uneasy... I kind of looked around and very nervously with a cracking voice asked, where did all the villagers go, were they relocated? She got up, walked to the river and stepped knee deep just long enough for the splashing then she stepped out. 3 Piranha were attached to her calf, she then yanked them off and said, " Well, Nature has the perfect cure for all your ills!" I nodded then got up very quickly and headed back to the car and the driver took us back to the Mansion in Sao Paulo. Not a word spoken the whole time....I just stared out the window, I did not even look at her ( She was extremely stunning looking too) and I was near heart broken and truly terrified!! I went and packed my bags walked downstairs to the driver who was waiting and he drove me to the Airport. There was a lawyer already there with Divorce/Annulment papers at the gate. I signed them and GOT THE HELL OUT OF THERE!!!! I never saw or spoke of them or to them EVER AGAIN! I went to Uni, buried myself into my studies and worked, worked, and worked and just kept to myself. Many years later when I left Medical Research, went into art blah blah..I was featured on the TV. Then at a Black Tie Affair in Dallas at Ben E. Keith Corporation for contributions to Texas Historical Art blah blah blah but I happened to be seated to the very member of the DeBeer Family who I met in Brazil in biz with my ex wife's family. YOU TALK ABOUT A PUCKERED BUTTHOLE AND SWEATING BULLETS!!!! I was a freaking nervous wreck the whole time and each time I casually looked he had the most SHIT EATING GRIN on his face. GOD I had so many paranoid thoughts popping in my head!!! When I was called to accept the award, the spotlight hit me I was shaking like a leaf.....after that night I disappeared again from any spotlight kept out of sight. When I say I heard and saw stuff that was being planned....I am telling you that these kinds of people are so jaded so callous hearted, they even teach their children this attitude!!! They could walk over to a dying beggar in the gutter and snatch his last dollar and be gleeful over a dollar profit margin with no investment. And not give a rats ass about the beggar! That is how truly powerful and scary these kinds of families are. And the world thinks these are the good guys....These are the people WHO OWN GOVERNMENTS!!!
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
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?
-------------------------------------------------------
* https://www.courts.oregon.gov/programs/family/marriage/Pages/SpousalSupport.aspx
* https://www.irs.gov/taxtopics/tc452
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