Promises in a Prenuptial Agreement are not Deductible
Richard Spizzirri had been married and divorced three times before he married his fourth wife, Holly Leuders. Naturally, they executed a prenuptial agreement, given that Richard was then worth between $24.7 million and $27.7 million, while Holly brought $1 million to the marriage. During their 18-year marriage, the prenup was amended five times. The key change was that Holly released earlier promises of a share of Richard’s estate for his commitment to provide $6 million in his will for her and $1 million for each of her three children from a prior marriage.
The couple became estranged, and Richard fathered two children outside of marriage, in addition to the four he had with his first wife. His will largely left his estate to the four children from his first marriage. In three codicils he added provisions for his sons conceived out of wedlock. He never amended his will as promised, and left nothing at all to his stepchildren.
The stepchildren sued for their inheritance, and Richard’s estate paid them, and then tried to make lemonade from that lemon by claiming those payments as an expense of administration. IRS objected, and the Tax Court agreed that the payments are not deductible.
On appeal, the 11th Circuit Court affirmed the Tax Court’s judgment. Treasury Regulations list five factors that suggest a transfer was contracted bona fide. First, the transaction underlying the claim occurs in the ordinary course of business, and is free from donative intent. Second, the claim is not related to an expectation or claim of inheritance. Third, the claim originates pursuant to an agreement between the decedent and the family member. Fourth, performance by the claimant stems from an agreement between the decedent and the family member. Finally, all amounts paid in satisfaction or settlement of a claim or expense are reported by each party for Federal income and employment tax purposes in a manner that is consistent with the reported nature of the claim or expense, that is, the deducted expense is reported as income by the recipient. None of these tests were met, according to the appellate court. Notably, the stepchildren did not report their inheritances as income [Estate of Spizzirri v.Commissioner, 136 F.4th 1336 (11th Cir. 2025)].
(April 2026)
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