FORENSIC CPA

Alimony Recapture

(Excessive Front - Loading Rules)

Walker & Company CPA, provides forensic accounting and litigation support services to attorneys working in the family law area.

This publication is intended to be informative and educational. It does not replace the services of a competent professional which should be sought before relying on this information.

In order to ensure that the payments deducted as alimony are not disguised property settlements ( which are nondeductible), Congress requires recapture into income of the payor spouse if alimony decreases too fast in the first three years of permanent support.

Generally if spousal support steps down (decreases) in either year two or three by more than $15,000, the payor must pay taxes on a portion of the payment he or she deducted in year one and / or year two.

These rules do not apply to temporary spousal support - only permanent support awards.

The recapture rules are applied using calendar years.

If yes to any following questions, there is no alimony recapture:

Did payments terminate because either party died?

Did payments terminate because payee spouse remarried?

Did payments fluctuate based on payor's income over at least 3 years?

ALIMONY RECAPTURE WORKSHEET

Case Facts:

a. Payments in first post-separation year	________
b. Payments in second post-separation year	________
c. Payments in third post-separation year	________

Recomputation Test One:

d. Enter amount from b.	________
e. Enter c. plus $15,000	________
f. Subtract e. from d. ( not less than $0 )	________

Recomputation Test Two:

g. Enter b.	________
h. Enter c.	________
i. Add g. and h.	________
j. Enter f.	________
k. Subtract f. from i. ( not less than $0 )	________
l. Divide k. by 2	________
m. Enter a.	________
n. Enter l. plus $15,000	________
o. Subtract n. from m. ( not less than $0 )	________

Total Recomputation

p. Add f. and o.

________

The first post-separation year is the first calendar year in which alimony or separate maintenance payments are made pursuant to a permanent order. The second and third post-separation years are the next two calendar years, respectively.

The amounts are the calendar-year amounts of spousal support, which also meet the definition of alimony. Line (a) is only the amount of alimony paid pursuant to a permanent order.

Quick Check:

A useful rule of thumb is that there is no recapture if Year 2 is greater than or equal to Year 1 minus $7,500 and Year 3 is greater than Year 2 minus $15,000. This rule of thumb can be used to quickly analyze instruments already executed or structure alimony payments in future agreements.