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FS-Promissory Notes-Alimony & Elder Divorce Train Wreck
Jan L. Warner & Jan Collins

Question: Early in our 16-year marriage, my wife's mother loaned us $25,000, and my wife and I signed a joint note, which has never been paid. My mother-in-law never asked for a payment until my wife and I separated. Now she wants not only the $25,000 principal, but also interest for 16 years. I don't mind making payments to my wife's mother so long as they are tax deductible to me.

My wife doesn't work outside the home, and I will be paying her alimony anyway. Can this be accomplished as part of our divorce settlement?

Answer: So long as all requirements for alimony are met, payments to a third person "on behalf of a spouse" according to the terms of a divorce or separation agreement should qualify as alimony. As such, these payments should be tax deductible to you and taxable to your wife -- assuming the agreement is worded properly. But if it were your debt, the payments would not be deductible alimony since they would not be considered as payments made "on behalf of a spouse," even if made according to the terms of a divorce agreement.

Since you and your wife both owe your mother-in-law according to a joint note, the part you pay to your mother-in-law on behalf of your wife should be alimony that should be taxed to your wife, but the portion of the debt you pay to take care of your share would not qualify.

To make the entire amount qualify as alimony, you and your wife might consider her assuming the entire debt and you making the payments as alimony provided for in the divorce agreement. In this way, your mother-in-law would receive the sums due her, you would receive a tax deduction, and your wife would pay the taxes on what you pay your mother-in-law. But remember, because of the intricacies involved -- such as making sure that the payments to your mother-in-law terminate on your wife's death and meet the other alimony criteria -- we do not suggest that you take any action without the advice of your attorneys and a certified public accountant.

Question: My husband (age 82) and I (age 77) married two years ago, the second marriage for each of us. We each have children from our prior marriages. Before we married, he sold his home, put the $125,000 he received in his account, and moved into my $175,000 home.
He insisted that I accept $30,000 from him and put his name on the deed to my house, which I did after weeks of badgering. Then he insisted that I sell my car, which I did, only to find that he put the new one in his name. My income is combined with his, and he makes me ask him for every penny I need. In the winter, he will not turn on the heat unless he is taking a shower. In the summer, he insists the air conditioning stay at 87. We can only have one light on at a time.

Then the crowning blow: While I was in the hospital after major surgery, he called and said he never should have married me, apparently upset that I was not home to wait on him. He told me that he had changed his will and had fixed it so that, if he dies before me, I can live in my house until I die, then it will be sold and half will go to his children. He and his children have caused problems with my children. I am so upset over this and don't know what I should do. I am at the end of my rope. I don't feel that he has a right to give my property away. What kind of lawyer should I see to straighten out this mess?

Answer: More and more, we are hearing from older Americans who, after a late-life divorce or the death of a spouse, are remarrying only to find that things are not as they expected. That's why we urge those who are contemplating second or third marriages late in life to thoroughly plan in advance by using premarital agreements and ancillary documents.

While it is difficult for anyone to go through a divorce, this is especially true for older Americans. You have many complex issues here, which unfortunately we do not have the space to cover in this column, so we suggest that you find a good matrimonial lawyer as soon as possible. If you allow things to continue to progress, both you and your children will find yourselves without that which you and your previous husband worked for years to acquire.

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Suggested Reading:
Separation and Divorce Guidebook
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FS-Be Wary of Credit Issues with Ex
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FS-Becareful of Bargaining Away Alimony As Child Support
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FS-Lawyer Tells Me to Lie & Pension Double Dipped
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FS-On and Off Again Reconciles Can Create Agreement Disasters
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FS-The Dangers of Family Loans
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FS-Transference of Affection & 10 Tips of Divorce
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