Not Obtaining a QDRO Was Costly for Taxpayer

A taxpayer that did not obtain a QDRO, but rather split his pension with his former spouse once it began paying, found himself stuck with the entire tax bill in the case of Benzin v. Commissioner, TC Summary Opinion 2009-198.

A taxpayer began paying his wife $475 per month shortly after beginning to receive distributions from his USPS pension plan.  He claimed a deduction for alimony paid to his former spouse based on these payments.  He submitted as part of the evidence to support his alimony claim a single page (labeled page 2) that contained an order that he pay his former spouse $475 per month as a projected calculation of her interest in his retirement plan.

However, at trial he did not provide any explanation of what this paper represented, nor were the other pages presented.  The actual agreement that was part of the divorce proceeding specifically provided that neither party was obligated to pay maintenance to the other, and the taxpayer testified that he did not have to pay alimony.  As such the Court held that there was no evidence provided that this payment met the requirements to be deductible as alimony under §71.

The Court suggested that the taxpayer could solve his problem for future years by having a local court issued a Qualified Domestic Relations Order on the plan, the method provided under the IRC to handle a division of plan benefits under §414(p) so as to not run afoul of the anti-alienation provisions of IRC §401(a)(13).  Had the taxpayer used a QDRO the entire issue would have been solved, and he would not have had to attempt to meet the specific rules to have a payment treated as alimony under §71.

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