Alimony payments, or spousal support and maintenance, are regular payments made from one ex-spouse to another after divorce or separation. Spousal support payments are usually tax deductible for the party making the payments, and are treated as taxable income for the recipient. However, maintenance payments that are made in connection with a property settlement are not tax deductible.
In this respect, alimony recapture laws exist to discourage divorced parties from wrongly characterizing property settlement payments as alimony. It is common for the paying spouse to “front-load” payments (i.e., pay more than required) during the initial years after separation or divorce. Alimony recapture laws allow the government to “recapture” deductions that were improperly taken during these initial years.
Alimony recapture laws can be exceedingly complicated and can definitely require the assistance of a lawyer. For example, they only apply if the spousal payments begin to diminish or cease within the first 3 years after divorce. If recapture laws apply, the paying spouse may not be eligible for deductions in the future.
What are Some Legal Issues Associated With Recapture of Alimony Laws?
Alimony recapture laws may also involve other legal issues such as:
- Modifying Alimony Payments: The parties may need to file for a modification of spousal support with the court to reflect the changes in support amounts.
- Tax Fraud: One or both parties may be charged with tax fraud if they knowingly falsify tax information for the purpose of obtaining deductions. Tax fraud is a serious crime and can result in felony charges, criminal fines, and/or incarceration
The main element in alimony recapture statutes is preventing the improper characterization of property settlement payments as alimony. For example, suppose the paying spouse owed the other spouse payments on a piece of property and paid them an installment for the debt. If the payment is knowingly classified as alimony in a tax sheet, this could be considered a violation of federal or state tax laws.
Do I Need a Lawyer for Questions Regarding Alimony Recapture Laws?
Recapture of alimony laws are very complex. They involve a complicated analysis of the first three years of payments made after divorce. While alimony recapture laws don’t apply to everyone, you may need to contact a lawyer for advice about the laws in your area. A qualified family law attorney can help ensure that you are meeting the requirements in the areas of tax law and family law. Your attorney can help you avoid costly errors and can defend you in court if necessary.