Most divorce cases involve the issue of spousal support (alimony).  Spousal support is deductible for tax purposes by the payor and taxable to the payee.   Sometimes the alimony is payable over a long period of time and sometimes a short period of time depending upon the length of the marriage, the amount of money involved, etc.  When settling a spousal support issue or when entering a permanent court order on spousal support, beware of the recapture (front-end loading) rules for spousal support.   Section 71(f) of the Internal Revenue Code contains provisions that provide for the loss of a deduction for spousal support that is payable for less than three years and/or that is significantly higher in the first or second years of payments.    

If alimony is payable over a time period of less than three years and the amount that is being paid is greater in the earlier years, then a portion of that spousal support may not be deductible by the payor and will have to be recaptured in the third year after the payment of support.  The purpose of the recapture or front-end loading rules is to prevent parties from making large payments of support in early years to take advantage of significant deductions or to disguise a property settlement as spousal support in an attempt to deduct that amount.

For example, if a case is settled and the agreement is to pay the spouse $50,000 in spousal support in one year and no support thereafter, in the third year after the payment of the support, the payor will have to recapture a significant portion, in this case $35,000, of the $50,000 deduction that was taken in the first year. 

The safe way to settle any spousal support case or to have any final order on spousal support is to make sure that it is payable in fairly equal amounts over a period of at least three years.  If the amounts do not vary by any significant portion, approximately $5,000 per year, there should not be any recapture. 

Whenever you have a case that has a spousal support payment less than three years or the payments vary significantly, go to Internal Revenue Code Section 71(f) and do your calculations to see if you have a problem with recapture or front-end loading or discuss this with your attorney.