Stimulus Payments & Divorced Couples

[mfsjpm01]

Wondering how preparers are handling the stimulus payment reconciliation for couples who divorced in 2020?  I am running into several situations where stimulus was paid to one spouse based on the 2019 or 2018 return. In some cases, the ex-spouse paid half of the stimulus, none, or a portion of the full payment.

Not sure if the IRS is going to automatically attempt to reconcile with their records.  Can certainly document how the ex-spouses split the payment (or didn't) but don't want to automatically raise red flags.

Thanks for any thoughts/best practices.

[Just-Lisa-Now-]

Sounds like they have some legal issues to work out if one kept the others portion of the advance payment.

[mfsjpm01]

I wish it were that simple.  Take, for example, this situation from a now-divorced couple:

Couple's AGI in 2019 was $160,000.  Husband made $100,000.  Wife made $60,000.  They received lower stimulus payment in round one and lower in round two because of income over the threshold.  

Husband received round 1 in his checking (because that was used on tax return for refund).  Paid half of it to wife.

For round 2, wife argued that husband's income made them ineligible for full, so he paid her $600 for round 2, even though that was almost everything he received.

My plan is to report the amounts that each spouse actually ended up with in the end.  But unsure if the IRS is going to balk at that because the husband is not reporting his entire payment or his half received for the 2nd round.

[TaxGuyBill]

The law says if the payment was based on a joint tax return, that 1/2 of the payment belongs to each spouse.

[qbteachmt]

"They received lower stimulus payment in round one and lower in round two because of income over the threshold."

But that doesn't matter; that is the Advanced Payment as a Projection against 2020 Actuals. Even if they had not divorced, and 2020 had been lower reported income, the 2020 tax return is the reconciliation between what was paid out already and what they are entitled to get.

They didn't get lower or higher. They just got money as a Projection. Now it is time to report reality for 2020. And allocating what they got is correct; how they split is none of your concern.

[BobKamman]

@TaxGuyBill "The law says if the payment was based on a joint tax return, that 1/2 of the payment belongs to each spouse."

Just to be clear here -- entitlement to the funds is a matter of state law and if the spouses can't agree, they can go back to divorce court.  The tax law says that "Except as otherwise provided by the Secretary," the EIP is allocated 50% to each spouse if it was paid based on a joint return.  That's all we need to know to figure the recovery rebate credit, if any, on a 2020 individual return.  The rest is noise.  When the ex-spouses start trying to tell you more of their sad story, cover your ears and shout "nah nah nah nah nah" loudly until they shut up.