How to Calculate Lump Sum Spousal Tax Payment

Hi Desperate_Dad,

The agreement was that I could claim the lump sum payment as tax deductible to me and taxable to her. I agreed to indemnify her for her tax obligation on the lump sum amount only, not her entire tax obligation for other sources of income.

I do not know what was explained to her in that regard, it was during a very acrimonious and stressful period trying to avoid arbitration that she invoked, so we were not even in the same town when this was happening.

So she thinks I need to cover the entire tax amount, including all other sources of income (employment, investments, spousal support, etc.)
 
If she wasn't getting the lump sum what would she pay in taxes that year? Now look at what she has to pay in taxes when the Lump Sum is added in - that increase is the amount you have to pay. She wouldn't have to pay that tax if it weren't for the lump sum amount. "indemnify and save the Applicant harmless with respect to *any* income tax that she is obligated to pay as a result of the spousal support payment" And because the lump sum is pushing her into another bracket you have to pay the higher marginal tax on that amount. You aren't paying got taxes on any of her other income, she is. You are only paying the tax on the lump sum payment. It would have been worded entirely different if you were meant to only pay the average of her tax rate that year.
 
Presumably your ex had legal and financial counsel.
She is an educated woman.
She is merely having a sort of "buyer's remorse" I think.
Good for you for managing to effect the one-time SS.

If this is not the case then perhaps I am missing something?
 
Yes, she had legal counsel for sure on this, and also agreed to the tax liability issue that this lump sum payment would have, whereas I would get the tax deduction.

The issue I am having is that the full amount she is demanding I indemnify her from is a higher amount than my tax deduction, so to me, something isn't right here.
 
arabian said:
Presumably your ex had legal and financial counsel.
She is an educated woman.
She is merely having a sort of "buyer's remorse" I think.
Good for you for managing to effect the one-time SS.

If this is not the case then perhaps I am missing something?
Click to expand...

Sorry Arabian, I missed this part of your post...

No, I pay monthly SS to her and have since separation 7 years ago. During the settlement process (5 years after original agreement signed) as part of med/arb process (she hated the deal she signed almost right from the get to), I agreed to pay an additional lump sum SS payment to deal with retro SS, as she claimed I needed to pay more given higher incomes I earned in those earlier years.

I continue to pay the monthly SS, and it is this single lump sum payments and its tax implications she is having issues with. I paid over $125K last year in just monthly SS, and add this lump sum on top of that.
 
My ex pays me monthly ongoing indefinite SS. My ex also owes me money in arrears. The amount owing was determined by the court and is registered with MEP Alberta. If my ex were, to my surprise, pay me the amount of arrears owing in lump sum I would be pleased and surprised. This one-time payment is his prerogative. My tax position for 2019 would have to show the payment and reported in my taxes as income. OF course I would have to pay additional taxes, particularly if I wasn't employed and without ability to max out RRSP contribution. Fortunately I am not in that position.

How, when, why I pay my taxes certainly is of no relevance to my ex, nor should it be.
 
Getting back to your original post, the sentence ""The Applicant and Respondent shall exchange any supporting documentation necessary to substantiate the tax amount owing by the Respondent to the Applicant" - I am a bit confused by this.

What is the intent of this process? Why do you give a rat's ass what her tax position will be? How can you know what she will owe in taxes?
 
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KW_Divorced said:
So she thinks I need to cover the entire tax amount, including all other sources of income (employment, investments, spousal support, etc.)
Click to expand...


If your agreement provides "The Respondent shall indemnify and save the Applicant harmless with respect to any income tax that she is obligated to pay as a result of the spousal support payment of $XX,XXX as set out in section (above)." than I don't understand why she would think you need to pay her entire tax bill.


You owe her marginal tax rate on the lump sum amount. You don't owe on her employment income etc. The way the agreement is worded, it sounds like they expected the tax on the lump sum to be a wash between you and your ex, or slightly in your benefit if you are at a higher marginal rate.


As for the need for the ex to provide the OP her tax information, it may be in order for him/his people to accurately determine the amount of relief he owes his ex. The ex may argue for more, but than it is between their respective experts to rationalize their positions.
 
^ I agree but should the "rationalization" not have been completed prior to an Order? Seems like a case of regret more than anything to me.
 
She sent me her tax return without the lump sum and one with. She then looked at the tax differences between her two returns and claims I owe that amount...rather sizable portion.]

The ex is NOT asking for the OP to pay her entire tax bill, just the part that is the result of the lump sum. If she didn’t get the lump sum, she would be paying a lower amount - she is paying that lower amount on her own earnings and the Op is “topping up” the tax incurred solely because of the lump sum payment.
 
hi, interesting read

I am just wondering how you were able to pull off deducting the lump sum SS. My understanding is that lump sums are not tax deductible. I currently have to pay monthly SS and obviously this will be tax deductible.

Is it just the language you guys used?

I do not know if I would do a SS buy out but would be interested in any tax savings, it would almost be like doing an awesome income splitting.
 
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