Question

Clem and Ida have been married for several years, but this year they decided to get divorced. In the divorce decree, Clem agreed to deed his car to Ida and pay Ida $10,000 per year for four years. Will either of these transfers qualify as alimony for tax purposes? Explain.

a. Neither transfer qualifies as alimony.
b. The car deed transfer qualifies as alimony.
c. The $10,000 per year payment qualifies as alimony.
d. Both the car deed and the $10,000 payment qualify as alimony.

Answer 1

Neither transfer qualifies as alimony for tax purposes.

Step-by-step explanation:

Neither transfer qualifies as alimony for tax purposes. Alimony refers to payments made by one spouse to another after a divorce or separation. To qualify as alimony, the payment must meet certain criteria, such as being made in cash, being required by a divorce or separation instrument, and ceasing upon the recipient's death. In this case, the car deed transfer does not involve a payment of cash, and the $10,000 per year payment is not required by the divorce decree but rather agreed upon by Clem. Therefore, neither transfer qualifies as alimony.