Contact UsIn my divorce, I was ordered to pay alimony or "maintenance" in the amount of $1000/month for thirty months. In lieu of monthly payments, my "ex" agreed to a lump sum payment of $30,000. This money came from my 401k account and was added to her share of that account. So she received half plus 30k. This additional money was specifically noted as "for maintenance". My question is: is this money tax deductible?
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Tax Professional Answers
John Stancil
There are two problems. First is that the rules state that the payment must be made in cash not property. If cash was transferred to her out of the account, then it would count as cash coming from you. If she received securities, that is not considered cash.
Second. There is a recapture rule. if the amount of alimony declines significantly in the second or third year, there is a recapture. This simply means that you must report a portion of the alimony paid in a prior year as income when the drop is of sufficient size to warrant recapture. The rule applies when the payments decrease or terminate during the first three calendars years post-divorce and:
The total payments made in the third year decrease by $15,000 or more from the payments made in the second year; or
the payments made in the second year and the third year are substantially less than the payments made in the first year. In your case, the alimony in year one was $30,000 and in years two and three, it will be zero. For year one you have deductible alimony of $30,000. However, in year three, the alimony has decreased by $30,000, which is $15,000 above the $15,000 threshold, so you will have taxable income from alimony recapture in the amount of $15,000.
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501 weeks ago
Second. There is a recapture rule. if the amount of alimony declines significantly in the second or third year, there is a recapture. This simply means that you must report a portion of the alimony paid in a prior year as income when the drop is of sufficient size to warrant recapture. The rule applies when the payments decrease or terminate during the first three calendars years post-divorce and:
The total payments made in the third year decrease by $15,000 or more from the payments made in the second year; or
the payments made in the second year and the third year are substantially less than the payments made in the first year. In your case, the alimony in year one was $30,000 and in years two and three, it will be zero. For year one you have deductible alimony of $30,000. However, in year three, the alimony has decreased by $30,000, which is $15,000 above the $15,000 threshold, so you will have taxable income from alimony recapture in the amount of $15,000.