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If disability benefits are assigned to my ex-spouse following a divorce, are the disability benefits taxable to the ex-spouse?

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.

There are 10 opinions so far. Add your comment below.

Kathy:

Do I have to file my LTD on my taxes? If so, are they taxed as overall income, or do I pay taxes on them out right because no taxes have been paid on them? I live in FL.

Attorney Stephen Jessup:

Kathy,

You will need to consult with a tax professional as to any questions you have about the taxability of your benefit.

Nancy T.:

If I keep all my met life ins during a divorce does he get equal pay from some place,else?

Attorney Stephen Jessup:

Nancy, you will need to consult with a divorce attorney as to what would be considered marital assets subject to division.

Paul M:

In California, will the court divide as community property, private disability policies that are currently paying an MS disabled separated spouse for life? If so, who do I turn to to help value the retirement portion?

Attorney Stephen Jessup:

Paul, you will need to discuss your questions and concerns with a California based family law attorney to best advise you.

Warren:

Does an ex-spouse have any claim on an unused disability policy?? (In the divorce process).

Attorney Jay Symonds:

Warren, I’m not sure what you mean by “unused disability policy” but you should consult a divorce attorney to determine an ex-spouse’s potential rights.

Leona M.:

I am in separation. My husband has been awarded $22,730 in nontaxable disability from private insurance companies. My earning capacity is 1,310 per month. How would my portion be calculated? Thank you.

Attorney Jay Symonds:

Leona, I’m not sure what you mean by “separation.” If you mean you are in the process of getting a divorce, you would need to speak with a divorce lawyer regarding your rights to income.

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