As part of my divorce, I am required to maintain life insurance on myself with my ex-wife as beneficiary. Can I deduct the life-insurance premiums that I pay as alimony?
John
Dear John,
My answer will be longer than your question.
If your question is: Can you deduct the life-insurance premiums from your alimony? The answer is no. They are your responsibility to maintain. If your divorce decree states that your wife is the beneficiary of your life insurance, you are legally obligated to keep those payments current and — even if you were to change the beneficiary of your life insurance — a court would likely ensure your ex-wife received the funds. Divorce decrees trump the named person on life insurance policies. (This interpretation received some strong reactions on the Moneyist Facebook Group.)
If you are making these payments on behalf of your wife, you may be able to deduct them. “Generally, when the former spouse is required, under the divorce decree or agreement, to own and maintain a policy as security for post-death payments, installment premiums of the proceeds would be taxable as alimony to the recipient spouse,” says Nasser Zaer, national training and development director at Vantis Life Insurance Co. in Windsor, Conn. “Payments from an insurance trust that is established to discharge post-death obligations are also fully taxable to the recipient spouse.”
But that’s the simple answer. Due to the complicated tax code and the stipulations of divorce decrees in addition to what constitutes alimony payments in your state, such deductions may not be allowed. Zaer recommends anyone who maintains a life-insurance policy and pays premiums as part of a divorce decree — that’s you — to seek the advice of an attorney or a tax adviser. If you are able to consider these insurance premiums as part of your alimony and then deduct them from your taxes, your ex-wife will likely have to declare them as taxable income.
Author: Quentin Fottrell
Source: MarketWatch, Inc.
Retrieved from: www.marketwatch.com
FINRA Compliance Reviewed by Red Oak: 640648
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