Alimony & Maintenance: What is the Recapture Rule and How Does it Work?

Paule, Camazine & Blumenthal, P.C. posted in Maintenance/Spousal Support on Wednesday, May 21, 2015.

By Paule, Camazine & Blumenthal, P.C.

The Internal Revenue Code’s (IRC) treatment of maintenance (often referred to as  “alimony ”) is generally pretty straightforward: unless specifically designated otherwise in your divorce decree, if you pay maintenance you get to deduct it from your income; if you receive maintenance you must include it in your income. However, one potential issue called the “Recapture Rule” arises where payments decrease substantially during the first three years following the entry of a final judgment or order.

The Recapture Rule only comes into consideration if maintenance payments decrease or end during the first 36 months starting with the date the first monthly maintenance payment is due. “Recapture” applies where there is a decrease of more than $15,000 in the maintenance paid between the second and third years of payments, and where there is a significant decrease from the amount paid in the first year as well compared to the second and third years. If “Recapture” applies, the maintenance payer must include the recaptured maintenance as income on his or her federal income tax return, and the maintenance receiver gets to deduct the recaptured maintenance from his or her income.

The actual calculation of the amount of recapture can be determined based on the following worksheet from the IRS (which always refers to maintenance as “alimony”)

 

When settling a divorce, you should address whether the terms of your maintenance provision opens you up to revenue recapture and address its impact on your particular situation. These calculations can be complex and confusing. To speak with a family law attorney about this, or any other family law issue, please contact the attorneys at Paule, Camazine & Blumenthal, P. C.

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