The general rule is that if there are excess alimony payments in the first three calendar years of alimony payments following a separation or divorce then the excess will be recaptured during the third calendar year for federal income tax purposes. However, there are several important exceptions to this rule where the excess will not be recaptured. Let's discuss these exceptions in this article.
The exceptions to the alimony recapture rule are defined in section 71(f) of the Internal Revenue Code. The exceptions listed in that section are:
- Where alimony ceases by reason of death
- Where alimony ceases by reason of remarriage
- Temporary orders
- Fluctuating payments not within control of the payor spouse
Let's take a look at each of these exceptions in turn.
Where Alimony Ceases by Reason of Death
Alimony will not be recaptured if either spouse dies before the close of the 3rd post-separation year. Alimony payments must stop by reason of such death.
Where Alimony Ceases by Reason of Remarriage
Alimony will not be recaptured if the spouse who is receiving alimony remarries before the close of the 3rd post-separation year and alimony payments stop because of the remarriage. This exception does not apply where alimony payments stop because of the cohabitation of the recipient spouse.
Alimony that is paid pursuant to a temporary order will not be recaptured. For example, a court may enter a temporary alimony order during the pendency of a divorce case. Alimony payments made under that order would not be subject to recapture.
Fluctuating Payments Not Within Control of Payor Spouse
Alimony that is paid based on a fixed percentage of the alimony payor’s income from their business, property, or employment compensation will not be recaptured. This obligation to pay a fixed portion must continue for at least 3 full (not calendar) years.
As you can see, there are only a few situations where excess front-loaded alimony payments are not subject to recapture, and most of the exceptions are triggered where circumstances outside of the alimony payor’s control cause the alimony payments to decrease or stop. Nevertheless, knowledge of these exceptions is crucial for both alimony payors and recipients.
Now that you understand the exceptions to the alimony recapture rule, a great next step is to learn how to calculate alimony recapture amounts by reading: Calculating Alimony Recapture Using the Recapture Formula.