are proceeds received in a divorce settlement taxable?
Generally, amounts that are considered alimony are included as income on the tax return of the recipient. The term divorce settlement does not tell me if it is alimony or not. Also, there are factors involved in determining tax liability that are not stated in your question. One of those important factors is filing status. Taking the time to learn how new tax laws might impact your settlement agreement, and negotiating accordingly, could save you tremendously in the long run. Two major areas require special attention: changes to income and division of assets. Income from alimony could bump you into a higher tax bracket. Are Property Settlements Taxable? Property and cash transfers between spouses made as part of a divorce agreement are generally tax neutral. This means that there is no tax on cash transfers, there is no gain or loss on property transfers, and the basis of a transferred asset will not change. After divorce, any subsequent income from these assets would be taxable in the hands of the recipient spouse. There is no specific provision in the Act for tax implications on sale of assets acquired at the time of divorce. As a general rule, any asset when sold is subject to capital gains tax. Normally, distributions from a retirement plan prior to age 59 1/2 are considered early distributions and are subject to a 10% penalty tax in addition to ordinary income tax. An exception to this rule, however, is a transfer of the retirement plan (or a portion of it) to a spouse as part of a divorce settlement. –Cheryl Warren, Conn. Answer: No, it’s not taxable. There are no income tax consequences to what you receive from a divorce proceeding if it was part of the marital estate, says Christian Badali, partner in the family law group at Philadelphia-headquartered law firm Weber Gallagher LLP. As a general principle, a capital receipt is non-taxable while a revenue receipt is taxable. In an old Mumbai High Court ruling, it was held that monthly alimony, being a regular and periodic return from a decree, would constitute taxable income. In contrast, the lump sum payment received was held to be a capital receipt and, hence, not taxable for the former spouse. If one of the parties receives property that is income producing (such as rental property, stocks, or business interest), they are required to report the income they receive from that asset on their tax return. Do not include the settlement proceeds in your income. BUT. • If you receive a settlement for personal physical injuries or physical sickness, you must include in. income that portion of the settlement that is for medical expenses you deducted in any prior year(s) to. the extent the deduction(s) provided a tax benefit. If part of the proceeds is for medical expenses you. It is paid in established intervals (typically monthly), for a time period specified in the divorce agreement. If your proposed divorce settlement agreement includes alimony payments, in most cases, you will have to declare those payments as taxable income. (Although not commonly done, alimony can be structured as non-taxable income to the recipient and a non-deductible expense to the payor).
No,  There are no income tax consequences to what you receive from a divorce proceeding if it was part of the marital estate.