Waldo and Fern Are Negotiating a Divorce Settlement

question 124

Multiple Choice

Waldo and Fern are negotiating a divorce settlement. Waldo has offered to pay Fern $12,000 each year for a guaranteed 10 years. What are the tax implications of this proposition?
I.Since the payments are periodic and in cash, the payments qualify as alimony.
II.If the payments qualify as child support, Fern recognizes gross income and Waldo has a deduction from Adjusted Gross Income.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Void

A term describing a contract or legal agreement that is invalid or unenforceable from the outset, having no legal effect.

Contract

A legally enforceable pact made between two or more entities, recognized by law.

Gravel

Loose rock fragments and pebbles, often used in construction for making concrete, roads, and landscaping, or as a surface material for driveways and pathways.

Breach of Contract

The violation of a contractual obligation, which can lead to legal action and the obligation to repair the breach through compensation or specific performance.