Divorce, Taxes, and the 1984 Tax Reform Act: An Inadequate Response to an Old Problem

This article analyzes in detail the provisions of the 1984 Tax Reform Act relating to property settlements and cash payments made pursuant to divorce. It concludes that the provisions relating to property settlements are, on balance, beneficial, but that the changes relating to alimony and child support are almost totally devoid of merit. The article recommends that sections 71 and 215 be amended to provide that all cash payments made pursuant to divorce should be income to the recipient if those payments meet the formal requirements of new section 71(b). Even if the payments are income to the recipient, however, the payor should not be able to deduct payments unless the payor can show that they are in the nature of support payments, as under prior law.

Special rules relating to "excess frontloading of alimony payments" (the six-year rule and the alimony recapture rule) should be repealed. Because no cogent reasons have been advanced for repealing the Lester Rule, this article recommends that the Lester Rule be reinstated by a provision permitting child support payments to be deducted by the payor if the parties agree that the payee will report the payments as income.