How The IRS Recapture Tax Can Mess Up Your Alimony

rsz_irsSpousal maintenance is a part of many Woodlands Divorce cases. It is also usually rather short in length because its purpose is primarily to help one spouse re-establish their financial independence after the divorce. If you are considering spousal maintenance that decreases or end in the first three calendar years after your divorce then you and your Woodlands Divorce Attorney need to know about the IRS recapture rule.

The IRS alimony recapture rule provides that if the alimony you pay in the third year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year you may be subject to a recapture tax.

This rule would require you to include in your income in the third year part of the spousal maintenance you previously deducted. Your spouse can deduct in the third year part of the spousal maintenance payments he or she previously included in income.

There are certain payments that are not factored into determining if the decrease in spousal maintenance triggers application of the rule, these items are:

  1. Payments made under a temporary support order.
  2. Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment.
  3. Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year.

This is just one of the many issues that might need to be addressed in your Woodlands Divorce case. Make sure your Woodlands Divorce attorney is working to protect you from mistakes like this that can cost you a lot of money. To find out more about divorce in The Woodlands and Montgomery County, download your free copy of our Woodlands Divorce Guide updated for 2015.