Assignment of ISO income in Divorce

Forum|Forum|5 years ago
May 21, 2021
1 reply
16 views

Hi There,

My client has over 1m in ISOs and was divorced in 2020. The Marital Settlement Agreement awarded 1/2 of the ISOs to his ex spouse. In the 1st quarter of 2021 she exercised and sold 570K. This amount is reported on my client's paystub and will appear on his W2 for 2021. There is a PLR that says the ex is responsible for reporting the income on her return. I am unclear about the logistics of this. How do you back out W2 income and assign it to another person? Does anyone have experience with this issue?

Thanks!

Lacerte Tax

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IRonMaN

Level 15

You can't get it to the ex's return. The best you can do is hope that the ex is willing to kick some cash back for the tax that is going to end up being paid as part of the transaction.

Slava Ukraini!

R

Renee SnowAuthor

Level 3

Thanks, I've relied on your advice in the past. According to PLR-130300-04

E= Employee

X= ex spouse

1. The Court's recognizing X's CP interest in the ISOs and requiring E to exercise X's ISOs only in accordance with X's instructions and requiring E to designate X as the beneficiary of X's share of the options will not violate the requirements of sections 422(b)(5) of the Code relating to nontransferability and lifetime exercise by the employee.

2. AMT income recognized on E's exercise of X's ISOs will be includible in Xs AMT income for falderal tax purposes.

3. Income recognized on E's exercise of X's NSOs that remain in E's name or under E's control will be included in X's income for federal income tax purposes.

4. X will be entitled to any AMT credits as a result of E's exercise of X's ISOs.

I simply can't think of a way to transfer this W2 income to X other than a negative "other income" adjustment, nominee distribution for X's SS#.

sjrcpa

Level 15

What would happen if Employee told Employer xxx of these ISOs now belong to my Exspouse pursuant to our divorce and property settlement agreement?

I have no idea, just throwing it out there. And if this event already happened, it's too late, isn't it?

Does that PLR exactly fit your fact pattern? Only the person who got that PLR can rely on it.

The more I know the more I don’t know.

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