Building Tax-Proof Divorce Instruments: How IRS Recapture Rules Can Impact Your Clients Settlement Agreements

Most, if not all family law attorneys are familiar with the alimony recapture rules.  Their intended purpose is to safeguard against the abuse of the tax structure of alimony (in some jurisdictions referred to as “maintenance” or “spousal support”) by improperly labeling non-deductible property settlements as deductible alimony.  Not all abuses are intentional however, and it is easy to overlook the potential for future conflict when drafting divorce instruments. This article will discuss the impact of the alimony recapture rule, as well as tips and pitfalls for practitioners on the subject, after a general discourse on the framework for the Federal tax treatment of alimony.

The Alimony Recapture Rule:
To guard against property settlements being disguised as alimony, the Internal Revenue Code (“IRC”) contains a three-year rule pertaining to the excess front-loading of alimony.  Retrospective in nature, the rule applies only to alimony paid during the first three post-separation years, where the first post-separation year is the calendar year in which the payor spouse first makes payments to the payee spouse under an applicable divorce or separation instrument.[1] Alimony recapture may result from a change in the divorce decree or separation agreement, a failure to make timely alimony payments, a reduction in the payer’s ability to provide support due to job loss or other financial or non-financial reasons, a poorly drafted alimony award, or a reduction in the recipient’s support needs.

Alimony in General:
Before digging into the complicated nature of excess alimony payments, it makes sense to review the criteria that must be met for alimony to be considered taxable/tax-deductible.  Alimony is (i) the payment to a spouse or a former spouse; (ii) in cash; (iii) under a divorce or separation instrument; (iv) while spouses are living separate and apart; (v) with payments that cease upon death of the payee; and (vi) while spouses are not filing joint income tax returns with one another.[2]

A “divorce or separation instrument” includes a decree of divorce or separate maintenance, a written separation agreement, or any court order (including a temporary or interlocutory order) requiring a spouse to make payments for the support or maintenance of the other spouse.[3] It is important that practitioners distinguish state and local definitions, rules, and requirements from those mandated by the Internal Revenue Code (“Code”) when drafting settlement agreements, establishing positions, or making arguments in court to ensure that a divorce or separation instrument comports with the Code and avoid future negative tax ramifications for clients.

Third-party payments can be considered as deductible alimony if they are made on behalf of the payee spouse. Examples of third-party payments include: medical expenses, housing costs, taxes, tuition and life insurance premiums on a policy own by a spouse.  Payments must also be made in cash, including check or money order.

Not all payments to a spouse or former spouse can be considered alimony.  For instance, voluntary payments or payments not made pursuant to a divorce or separation instrument do not constitute alimony. Transfers of services or property, including debt instrument or annuity contract executed by the payer, do not qualify as alimony. Child support, noncash property settlements, or payments for the use or maintenance of the payer’s property do not qualify as alimony.[4]

Practicing attorneys should focus on the parties’ treatment of payments as opposed to the cause of a potential alimony recapture issue. Whether payments pursuant to a divorce or separation instrument are intended as child support, non-taxable alimony, cash payments in lieu of property, any combination of alimony and these types of payments, or otherwise, the only way to prevent improper tax reporting by parties or unintentionally being subject to recapture is by careful drafting and clear definition of the terms of an agreement.

Intentional Language and Clear Designations:
A simple way to help you clients stay out of conflict is to be clear when addressing what is non-alimony.  For example, spouses may designate that otherwise qualifying payments are not alimony, by including such a provision in the divorce or separation agreement. Such an agreement may be made at any time, so long as it is in writing, signed by both the payer and the recipient, which refers to the divorce or separation agreement and states that payments are not deductible as alimony by the payer and are excludable from the recipient’s income.

In cases involving payments toward both alimony and child support, it is important to advise clients that if both alimony and child support payments are required under the divorce or separation instrument and the payments are less than the total required, the payments apply first to child support and then to alimony.[5] A payment will be treated as specially designated as child support to the extent that the payment is reduced either: (a) on the happening of a contingency relating to a child, or (b) at a time that can be clearly associated with such a contingency. A contingency relating to a child commonly includes the child becoming employed, dying, leaving the household, leaving school, getting married, or reaching a specified age or income level. A payment clearly associated with a contingency relating to the child occurs only when (1) the payments are to be reduced not more than 6 months before or after the date the child will reach the age of 18, 21, or the local age of majority, or (2) the payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different child reaches a certain age from 18 to 24, which is the same for each child. [6]

Recapture Arithmetic:
Due to the formulaic nature of the IRC Rules, the amount of alimony to be recaptured, if any, can only be determined after the third post-separation year.  The mathematics work in reverse order.  That is, excess alimony payments in the second post-separation year are calculated first, and excess alimony payments in the first post-separation year are calculated second.

Excess alimony payments in the second post-separation year are equal to the amount by which alimony payments in the third post-separation year fall short of alimony payments in the second post-separation year, but only to the extent that such shortfall is greater than $15,000. For excess alimony payments in the first post-separation year, the math gets a little more complicated. Excess first year payments are equal to the amount by which the average of third year payments and un­ recaptured second year payments falls short of first year payments, but again only to the extent that such shortfall is greater than $15,000. Excess second year payments are then added to excess first year payments to arrive at the amount recaptured in the third year.[7]

Avoid Excess Front-Loading:
The focus when drafting divorce instruments should be on the avoidance of unintentional front-loading.  As a general rule, parties can steer clear of the recapture rules if they can ensure that (i) alimony payments in the second post­ separation year do not exceed alimony payments in the third post-separation year by more than $15,000 and that (ii) alimony payments in the first post-separation year do not exceed alimony payments in the second post-separation year by more than $7,500. Also, the later in the year alimony payments commence the less likely itis that the recapture provisions will apply.[8]

Practical Tips:

  • It is helpful to keep in mind that the recapture calculations are based on actual payment dates, so failure to make scheduled payments consistently and on-time can subject the parties to recapture, even in the face of efforts to avoid at the time of drafting.
  • The Following types of alimony need not be considered for the purpose of the recapture calculations: (i) payments pursuant to temporary support orders; (ii) payments that fluctuate and are not in the control of the payor spouse; (iii) payments that decrease due to the death or remarriage of the payee spouse before the end of the third post-separation year.
  • When designing provisions intended to be tax-deductible by one party and taxable to the other party, practitioners should carefully and explicitly describe the tax treatment for the specific payments referenced, ensuring that the description conforms with the requirements of the Code. A recapture issue could potentially be caused by the intentional or mistaken reporting of one or both parties. In representing the best interests of clients, the goal should be to eliminate the possibility of misreporting with clear terms.
  • Practicing attorneys must always be conscious of the possibility that parties might form a post-judgment agreement for modification of an order or judgment which results in a reduction in the payments without a separate, subsequent court order or judgment.

Alimony recapture is avoidable with proper planning, legal counsel and aforethought.  The most important family law attorneys should be concerned with is their familiarity with the IRC Rules and their potential impact at the time of drafting.

By, Sahmra A. Stevenson, Esq.
S.A. Stevenson Law Offices, LLC;
Twitter: @SAS_Law;
IG: SahmraStevensonEsq;
Facebook: @SASLawOffic

[1] See, I.R.C. §71(f)

[2] See, I.R.C. § 71(b) (To qualify as alimony under section 71 of the Code, the payer and recipient must live separately, the payment must be in cash, the divorce instrument must not designate the payment as not alimony, the spouses may not be members of the same household at the time the payments are made, there is no liability to make any payment after the death of the recipient, and the payments are not non-deductible child support)

[3] I.R.C. § 71(b)(2). Amendments to a divorce or separation instrument are generally not retroactive for federal tax purposes, unless to correct an error to reflect the parties’ original intent.

[4] Id.

[5] I.R.C. §71(c)(3)

[6] I.R.C. §71(c)(2)

[7] “Avoiding Alimony Recapture,” by, Jeffery Capron and William C Foote. Maryland State Bar Association, Section of Family and Juvenile Law Newsletter and Family Law News, October 2008.

[8] Id.

IN A PINCH _ Mini-Emergency Kits

It didn’t look like much to me at first glance, but the Mini-emergency Kit turned out to be a big surprise in a very tiny package. The kit is small enough to disappear in the palm of your hand (3.5” x 2” x 2”). Naturally you’re going to be a bit skeptical that all 17 personal care items that are inside will actually helpful when you’re in a real jam.[1] But just wait…

I was excited to take mine on a test drive when I went to Miami in February for the American Bar Association Midyear Meeting. Here’s what I found:

Overall Practicality. Overall the kit is extremely practical, whether of him or for her, it’s small enough to tuck in a purse, medium sized clutch or men’s wear suit pocket. The design gives a sense of integrity and I felt comfortable pulling it out in public. It didn’t appear to give away its contents or draw attention of anyone nearby.

Reusable Necessities.  Among the most useful were the emergency deodorant, stain remover and nail polish remover towelettes that were so convenient and concealable.  The wipes come wrapped in an easy tear foil that can be pinched to reseal and tucked back in the miniature bag.

Covering the Basics. The items I did not expect to need became handy to friends along the way.  Clear nail polish to stop a stocking run, a safety pen lent out to resolve an issue with a sagging hem line. I didn’t need the earring backs that came in the same packaging as the mending kit, but I can see them coming in handy.[2]

There was also hairspray, which leaked a bit and couldn’t have done much to hold my hair, clear plastic hair ties, a nail file, a back-up tampon, double sided tape, lip balm that smelled like jolly rancher candy (Yum!), breath drops, 2 aspirin, and a miniature Band-aid that could have maybe fit a 5 year-old child.

Room To Modify. The bag is made of quality materials and is clearly intended to be used time and time again.[3]   The list of items included is comprehensive, but not exhaustive. One suggestion I would make is to modify and supplement the contents of your mini-emergency kit to suit your personal likes and needs.  There is surprisingly room to do this at the time of purchase, but as you use items and make more room available you’ll have the opportunity to customize you’re the contents of your kit. While the online store offers refills of the originals, I found it more pleasing to add-in my own finds along the way. I went with a regular size nail clipper, 2 no-tear hair-ties strong enough to hold a high pony-tail, and lotion, which I was surprised was not included at all.


[1] Miniemergency kits are available for her and for him. HER kit includes items like, double-sided tape, a safety pin, a mending kit, 2 earring backs, dental floss, clear nail polish, an emery board, nail polish remover, stain remover, hair spray, clear hair elastics, a tampon, pain reliever, breath freshener, and lip balm. Packaged in a tiny, metallic zip pouch. HIS kit includes essentials such as Band-aids, Safety pin, Deodorant towelette, Pain reliever, Double sided tape, shaving gel, small razor, hair combs, Stain remover, Breath freshener, after shave, Dental floss and hair gel.

[2] Eraser backs might also be just fine in a pinch though.

[3] I was delighted by the variety of styles available online at

The Precarious Nature of the Emergency Custody Hearing: A Closer Look

 What’s an “emergency”?

There are many serious circumstances which may arise that would justify pursuing an emergency temporary change of child custody. Where the threat of harm is great enough, these emergency orders are sometimes undertaken during “ex-parte” proceedings, which means the other party isn’t present for the hearing.

Emergency relief in these scenarios is intended to protect children who are subjected to or are otherwise threatened with serious harm or child abandonment.  Examples of circumstances which may necessitate an emergency change may include:

  • Allegations of physical or sexual abuse.
  • Threats of same.
  • Abandonment of the children.
  • Some measure of custody was awarded to a convicted sex offender.
  • Allegations of substance abuse which put the children in danger.

As the outcomes of emergency hearings vary from county-to-county, the consideration as to what rises to the level off exigent circumstances cannot be captured in one easy explanation.[1] There is no clear definition available under Maryland Rule 1-351 governing the Maryland Rules of Procedure for Ex Parte Applications, and the standards applied are appropriately determined on a case-by-case basis.[2]

Generally, the court requires that the motion only be filed under circumstances that require immediate intervention. Emergency relief will be denied unless there is a sufficient showing that there is an imminent risk of substantial and immediate harm or harassment to a party or minor child or that there are circumstances which the Court believes require immediate intervention. The view that an existing “emergency” requires a showing that there is some sort of “blood on the floor” is still widely favored and a difficult burden to overcome.

The following are not considered emergencies (though determinations are made on a case-by-case basis)

  • Changes of custody in order to enroll children in school.
  • Unsubstantiated threats to remove children from the jurisdiction.
  • Financial issues.
  • Visitation issues.
  • Contempt.

Practice Point: In the event the Court does not find an emergency, you may request, and the court may grant instead, an expedited Pendente Lite (temporary) hearing to determine custody or visitation. If the judge presiding over your emergency hearing is unable to act upon your request additional pleadings should be filed with the court.

What must be filed?

If faced with an emergency situation, you can file a petition for the emergency temporary change to an existing court order.  It is important to remember that in order for the court to consider your emergency petition, the case must be open and an issue must be pending. If the case is closed and there are no pending matters, the court will not hear a petition for emergency relief until the status of the case has been updated.

What about when your client’s “emergency” arises before any order is in place? In that case the complaining parent must also file a Motion for Custody or other pleading placing custody at issue (e.g., Complaint for Absolute Divorce) at the same time the emergency motion is submitted for consideration.

Satisfying the Notice Factor:

Another factor contributing to the precarious nature of the emergency motion is it’s notice requirement. There is no mistaking the specificity and intent of the Maryland Rules on this point of practice.[3] Maryland Rules of Procedure at Chapter 300, Amended Rule 1-351(b) lays out the requirements a party must satisfy as to notice and reasonable efforts to contact the opposing party in a case.

“(b) the moving party has certified in writing that all parties who will be affected have been given notice of the time and place of presentation of the application to the court or that specified efforts commensurate with the circumstances have been made to give notice.”

The rules are clear that where the Court is unable to find sufficient notice, no relief can be granted to the moving party. Notice must be given within 24 hours of the requested haring and must state the proposed time, date and location where the hearing will take place. In Baltimore County, emergency hearings are only heard on Mondays, Wednesdays and Fridays at 1:30pm. The Baltimore City Circuit Court webpage goes a step further in spelling out the moving parties’ responsibility to give notice, posting in bold-face font type that “[i]t is counsel’s responsibility to contact opposing party or counsel for the opposing party…the proposed date and time…”

What becomes difficult to determine in actual practice, is what the court will consider as a “reasonable” effort on the part of counsel to give the other side notice and an opportunity to be heard on the moving parties’ pleading. It is difficult to propose to an aggrieved parent, the practicality of attempting delivery by certified mail, and often times the situations present themselves with a set of factors which make contact with the Sherriff’s Office or a private process server a pointless pursuit.  So what then?

The answer seems to be, simply do everything within your power, legally and ethically, to make the opposing party aware off your intent and actions in the case.  If you can get the other side to show up at the date and time of your hearing, no matter the methods used, you’re halfway to victory.

Author: Sahmra A. Stevenson, Esq is family law practitioner at S.A. Stevenson Law Offices, LLC. Phone: (301)795-2728;  Email:;  Twitter: @SAS_Law; IG: SahmraStevensonEsq;]

[1] Online resources for the state courts in Vermont refer to an emergency as being “[a]ny relief sought for which, through circumstances beyond the control of the applicant, there is not enough time to give the notice required by the Rules.”

[2] Online resources for Pennsylvania state courts opine that “[a] motion for expedited hearing or an emergency motion is filed whenever movants, in order to avoid irreparable harm, need the requested relief in less time than is normally required by the Court to receive and consider a response. This motion must specify the reason(s) why expedited consideration is necessary and the motion for which you are seeking expedited consideration must be attached as an Exhibit.”

[3] See, Maryland Rules of Civil Procedure 351(b)

Getting Your Client To Happy:

After what proved to be a lengthy, but very fruitful mediation this morning, I feel compelled to share some notes about what I think worked well for the parties in today’s case.  As an attorney attending a mediation, there are only so many factors you have control over.  You’re not running the show, and neither is your client. Preparing your client, physically, mentally and emotionally for what they are walking into is an essential part of getting them to happy.

HALT: Hungry, Angry, Lonely (bored), Tired

Its your job to make sure that your client is prepared before and on the day of the mediation. A mediation can take anywhere from one to four hours (in one sitting) depending on the mediator and the issues in the case.  Never let your client get too hungry, angry, lonely (bored) or tired.  A sign of any of these emotions is a direct signal to you as the advocate to HALT the mediation process. Ignoring these signals may lead to poor decision making or a break-down in the communication process. Wasted time is wasted money for your client. While it is common sense to tell your client to eat and sleep the day before, going the extra mile is what is going to get your client to happy. I keep Kind bars, bottles of water, 100 calorie nut packets and peppermints (the sent off peppermint is invigorating) in my bag and I check-in with my client every 45-60 minutes to get an idea of how they’re feeling.

Preparing An Inventory:

It’s easy to point the finger -that is, it’s always easy for our clients to tell us what it is the other party did, or is doing, wrong.  Identifying grievances is essential to finding solutions, but what about your client’s liabilities?  Just before walking into a mediation I sit down with my client to take an inventory.  I ask them to tell me in their own words where they think they could have done better working with the other party up until that very present point in time, leaving out any mention of any harms inflicted on them.  As facts and information come to light during the mediation, I revisit the inventory during breaks.  Keeping my client focused on the things that he or she has control over, mainly themselves and their own actions. When a client can successfully maintain an awareness of their role in a conflict, they are able to contribute to the process of finding a solution in a more meaningful way. Drawing from this sense of self-control also seems to help my clients stay calm when conflict arises.

Mediator Synergy:

Mediator synergy can go a long way to help with the flow of your session.  If you’re in a position to choose a mediator for your case, its helpful to keep your client’s temperament, life experiences and personal viewpoints in mind.  For example, if your client is a female victim of domestic violence, she might be more comfortable working with and taking direction from a woman in high-stress situations.  I might be inclined to choose a male mediator in a scenario where my client Father feels manipulated or taken advantage of by his child’s Mother.  Especially where opposing counsel might also be a female, and a meeting with all the parties would put him at, what he would perceive to be a 4 to 1 disadvantage. It’s not your job to judge, understand or cure your client’s issues, but you can predict how their issues and perceptions might get them tripped-up and discretely remove those obstacle from their paths. In some jurisdictions, parties are not given an option when a mediation is court ordered.  In these scenarios the best option is to do your homework, anticipate any personality conflicts in advance, and prepare your client accordingly.

Getting your client to happy, and keeping them there, requires more than just lawyering.  The client that keeps coming back is the one that believes in you as the solution.

By. Sahmra A. Stevenson, Esq. ( @SAS_Law; IG: SahmraStevensonEsq; Facebook @SASLawOffices)

One of the most beautiful things about having an office without walls is all the places it allows me to go while remaining connected with my clients. During one of my most recent journeys I traveled to Atlanta, GA for a Professional Success Summit hosted by the American Bar Association’s Section of Litigation and found myself surrounded by some of the most venerable trial attorneys in the country and a wealth of valuable information. Here is some of what I took away….

On the morning of Wednesday, November 16, 2016, a warm and anticipatory buzz was in the air. Conference attendees once again packed themselves into the first-floor ball room at the Ritz Carlton Buckhead in Atlanta, Georgia for a third and final day of presentations. Conference schedule materials listed the nine-o’clock hour as slotted for a panel presentation on “The Intangibles: Self-Investment, Branding and Coaching.”
Branding and brand management have become increasingly recognized value creators for any individual, or business, seeking to grow and succeed in the legal field. This makes them a career and business management priority. Aware of this phenomenon, the audience sat at attention ready to soak-in what was coming next. As ABA President Linda Klein wrapped up her remarks, the morning’s panelists, Janice P. Brown and George K. Schell, were introduced. What followed was a thoughtful and energetic presentation, exploring the nature of brand, and insightfully intertwining it with an understanding of the concept of leadership responsibility.

Personal Branding & Self-Investment:
“Personal branding is how you are talked about when you are not in the room,” Ms. Brown presented some of the bottom-line truths about personal accountability when it comes to building and maintaining your professional mark, reputation, and credibility. Digging even deeper, Ms. Brown intimated some additional branding principles reminding participants that “you must be consistent to be effective” and that “once people see you being inauthentic, you potentially lose their trust,” adding a new layer to the concept of branding as a conscious daily practice.

Through consistent and deliberate practice, we play an active role in ensuring that we are presenting an authentic self in our daily interactions. To do this, we must begin with intention and vision. “The most critical component of anything we do is how we feel about ourselves” Janice stated. She went on to provide a list of three important parts of maintaining a clear vision (i) dispelling negative and limiting beliefs; (ii) replacing them with positive affirmations; and (iii) changing your beliefs to meet your vision.

When the goal is changing another’s already formed perception of you or your brand, your success will be largely determined by your willingness to make the first move, be authentic and remain consistent. A perfectly timed power-point slide drove Ms. Brown’s point home. It read, “If your solution to the problem is that somebody else needs to change, then you’re doomed.”

Leadership of Self:
The concept of personal branding as a responsibility to exercise awareness of how others view us, our business, and ultimately our work-product, flowed seamlessly with Mr. George Schell’s discussion on leadership of self.

“We all have an obligation to our organizations to conduct ourselves as leaders every day,” said Schell. A statement that rang true to all listeners whether government, private, large firm or small. “Employees have to live up to the leaders they are watching represent them,” he went on to share.

Mr. Schell explored the importance of flexibility, growth and modeling accountable behavior by encouraging attendees to start taking a self-awareness approach to managing failure.

Addressing the audience, Schell instructed the group to “[l]ook in the mirror.” He encouraged listeners to begin with looking at their own actions, (and inactions) while making note of what they bring to the table, both positive and negative. Mr. Schell gregariously explained to the attentive crowd, that admitting our mistakes, and communicating failure, while keeping a keen eye and open mind out for the “good” in a situation is empowering. It gives us the ability to turn any tragedy in to a triumphant victory, known to some as a “teachable moment.”

“It’s all about the humans,” he joked with the crowd on several occassions throughout the morning presentation. He left the audience with three points to consider for modeling accountable behavior: (1) Empower and inspire -by demonstrating a willingness to be (i) adaptable (ii) accountable and (iii) real; (2) Listen -talk less; and (3) Have fun.

Janice P. Brown (Brown Law Group) is based out of San Diego, California, and can be reached at brown@brownlawgroup
George K. H. Schell (Coca-Cola Company; Council of Better Business Bureaus) can be reached at
Author: Sahmra A. Stevenson (S.A. Stevenson Law Offices) can be reached at (@SAS_Law; IG: SahmraStevensonEsq)