37.3 Cash Payments Required

Only payments of cash, checks, and money orders payable on demand qualify as taxable and deductible alimony. Your cash payment to a third party for a spouse qualifies if made under the terms of a divorce decree or separation instrument. For example, as required by your divorce decree, you pay your former spouse’s mortgage payments and real estate taxes on a home he or she owns, as well as his or her medical costs and tuition expenses. Assuming the other alimony tests (37.1) are met, you may deduct the payments as alimony and your former spouse must report them as alimony received. Your former spouse may deduct the real estate taxes, mortgage interest, medical and tuition costs as if he or she had paid them directly, subject to the regular deduction limits.

You may not deduct payments to maintain property owned by you but used by your spouse. For example, you pay the mortgage expenses, real estate taxes, and insurance premiums for a house that you own and in which your former spouse lives. You may not deduct those payments as alimony even if they are required by a decree or agreement.

Providing services or transferring or providing property does not qualify. For example, you may not deduct as alimony your note, the assignment of a third party note, or an annuity contract.

Planning Reminder

Payments to a Third Party

Cash payments to a third party may be deducted as alimony if they are under the terms of a divorce decree or separation instrument. You may also deduct as alimony payments made to a third party at the written request of the payee spouse. For example, your former wife asks you to make a cash donation to a charitable organization instead of paying alimony installments to her. Her request must be in writing and state that both she and you intend the payment to be treated as alimony. You must receive the written request before you file your return for the taxable year in which the payment was made. Your former wife may deduct the payment as a charitable contribution if she claims itemized deductions.

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Premiums paid for term or whole life insurance on your life made under a divorce or separation instrument qualify as deductible alimony to the extent your former spouse owns the policy.