In a recent United States Tax Court case an ex-wife had received a portion of her ex-husband’s disability retirement benefits as part of a divorce agreement. Prior to divorce, the disability benefits were paid to the disabled husband by the Los Angeles County Employee Retirement Association. The disability benefits paid to the husband were not taxable.
Following the divorce, the ex-wife received 50% of the husband’s disability benefits and she therefore assumed that the disability benefits she received would not be taxable. The IRS and Tax court ruled that the disability benefits would be taxable to the wife, but not to the husband.
The Tax Courts full written opinion has been uploaded for your review.
This case involved a state provided disability benefit and some very specific applicable laws. The law may be different when it comes to a private disability insurance policy or an employer ERISA governed disability policy. It always best to seek tax advice from an accountant or tax attorney.
Thank you to Gary Kaplan, CPA for bringing this case to our attention.