Divorce-related legal fees may be tax deductible, but generally, only to the extent that they were incurred for the production or collection of taxable income. Section 212 of the Tax Code, which authorizes a deduction for divorce-related legal fees, is very limited. And, the tax deduction for divorce-related legal fees is available only to the extent that the fees exceed 2% of a taxpayer’s adjusted gross income. Chapter 7 of my book, Frumkes & Vertz on Divorce Taxation, deals with divorce-related legal fees.
In plain terms, spouses can deduct divorce-related legal fees that were incurred for generating or collecting taxable alimony or spousal support, but not for defending against it. A federal appeals court made this clear years ago in Hunter v. U.S., 219 F.2d 69 (2d Cir.1955). Fees that are incurred to oppose an alimony claim or reduce one’s alimony obligation are not tax-deductible. On the other hand, legal fees incurred for obtaining an increase in taxable alimony, or defending against a decrease, are tax-deductible.
Child support is not taxable income, so legal fees for generating, collecting or defending child support are not tax-deductible. Property distribution in a divorce is generally not treated as taxable income, so divorce-related legal fees are not tax deductible. There is one exception, however. Fees incurred by an alternate payee to obtain retirement benefits by Qualified Domestic Relations Order are tax deductible.
Some of the legal fees that may be tax-deductible include:
- Discovery of the alimony payor’s income sources
- Calculating the payor’s income and spousal support obligation
- Negotiating a separation agreement to obtain spousal support
- Litigating the amount and duration of alimony
- Enforcement and contempt proceedings to collect arrears
- Writing and submitting a QDRO to obtain retirement benefits
Other kinds of legal fees are not deductible:
- Litigating equitable distribution
- Calculating child support
- Writing a settlement agreement to divide property
- Negotiating custody
There are two other types of divorce-related legal fees that may have tax benefits: (a) tax advice; and (b) preservation of capital assets. Fees incurred for the advice of a lawyer for the purpose of avoiding, minimizing or determining a client’s income tax liability are deductible (just like tax preparation services). Legal fees incurred to obtain or preserve capital assets (such as rental real estate, business interests, marketable securities) can be added to the tax basis of such assets, thereby decreasing their tax liability upon sale or disposition, if the legal fees are adequately associated with that purpose.
For family law help in Western Pennsylvania, call me. I’m Brian Vertz, and for more than 25 years, I’ve represented all kinds of people with complicated child support and divorce issues. My law firm is a powerful team of lawyers dedicated to family law. In Pittsburgh and Western Pennsylvania, call me at 412-471-9000.