108 / What is the tax treatment when an existing life insurance policy is owned and maintained by a former spouse?

Editor’s Note: The 2017 tax reform legislation eliminated the previously existing above-the-line deduction for alimony for tax years beginning after 2018, and provides that alimony and separate maintenance payments are no longer included in the income of the recipient.

If the policy is not transferred but the former spouse is required, under the divorce decree or agreement, to own and maintain a policy as security for post-death payments, installment payments of the proceeds would be taxable as alimony. Pre-2019, payments from an insurance trust established to discharge post-death obligations were fully taxable to the recipient spouse.¹

1. IRC § 71 (prior to repeal by Pub. Law No. 115-97); IRC § 682; Treas. Reg. §§ 1.71-1(c)(2), 1.101-5.