I just read something in a tax newsletter which I would like to share with you
and please forgive me if it really is common knowledge. The US Tax Court has
ruled that disability payments lose their tax free status when transferred
pursuant to a divorce. ( Fernandez, 138 TC #20)
Apparently a married police office retired from service on disability. Later,
when he divrced his wife, the court awareded her a portin of his disability
payments, which over the years she reported as tax-free payments. The Tax
Court apparently feels that the tax free nature of the payments is not correct,
since the wife is not disabled.
I will file this deep in the recesses owing to the fact that I have never
encountered this situation, but you never know!
