Property Settlements, Alimony, and Child Support
Response to the following problem:
Under the terms of a divorce agreement, Gary is to pay $300 per month as child support to Judy who has custody of their 12-year-old child. Judy is also to receive $1,200 per month for 12 years, but this payment will change to $1,000 per month when the child reaches age 18. Gary is also to transfer stock to Judy. The stock cost $20,000 and has a fair market value of $50,000. The divorce is finalized on May 1. In the first year under the agreement, Judy receives the stock and 8 months of cash payments.
a. How do these transfers affect Judy's gross income and Gary's AGI?
b. How, if at all, would your answer to Part a. change if during the first year Gary only made 6 of the 8 required cash payments?