Everything you need to know about the Alimony Recapture Rule 1

The alimony recapture rule may end up costing you a lot of money at tax time!


Have you ever heard of the alimony recapture rule? No? Well, you’re certainly not alone. However, like back taxes and lawsuits, it’s the kind of potentially awful situation that you need to be aware of. So that if it ever crops up, you’re prepared. However, if we can just take this moment to remind you of something important – if any unexpected changes occur to do with your alimony or child support payments, the first thing you should do is call your family law attorney! They can help you figure it out.


What exactly is the alimony recapture rule?


The alimony recapture rule is what allows the Internal Revenue Service (IRS) to “recapture” your income tax deductions, if they decide the alimony payments you’ve been making were really part of a property settlement, or child support. Yup, you read that right! If the IRS decided you’ve been disguising property settlement payouts or child support as alimony, they can decide to tax your alimony payments. Which means that your future alimony payments will suddenly become taxable!


What would make the IRS think that about your alimony payments?


Normally, the alimony recapture rule would only apply to you if your alimony payments decrease substantially, or end abruptly, during the first three calendar years. Because alimony payments are usually a constant figure, payed out over the course of many years, the IRS takes note when your alimony payments suddenly get much smaller after a year or two, or suddenly stop altogether. It makes them wonder if maybe you weren’t being entirely honest on your taxes…


Still not sure what that means? Here’s the basic breakdown: Alimony and property division are two separate parts of a divorce agreement, and are treated differently for tax purposes. For example, under current law, alimony is deductible by the person who pays it, and is included in the income of the spouse who receives it. Property transfers, on the other hand, are not deductible and typically don’t have any tax consequences. Mixing them can get you into trouble with the IRS.


Alimony can be a confusing subject for divorcing couples in Michigan


Getting divorced is a stressful process, and figuring out things like alimony, child support, and asset division can be very frustrating. At The Kronzek Firm, our skilled family lawyers have spent decades helping people from all over Michigan work through their divorces, and achieve the best possible results for their families, and futures.

Join us next time, as we wrap up this discussion, and look at new changes in the law that will have a direct impact on the alimony recapture rule. Until then, if you need help with any aspect of your divorce, call 866 766 5245 and talk to one of our helpful and experienced family law attorneys. We are available 24 hours a day, 7 days a week, including holidays, to help you work through this difficult period in life.