Kim and Alan's divorce is final. The court decree orders Alan to pay Kim alimony in the amount of $1000.00 per month for a minimum of four years with an automatic review by the court at the end of the first year, or a request by either party for a modification upon the showing of a substantial change in circumstances. Begrudgingly Alan made the first two payments. One night when Alan was at his

Question

neighborhood watering hole, he struck up a conversation with a guy holding down the barstool next to him. Alan found out this guy was recently burned at the alimony stake. The two began commiserating when Buddy, the inebriate on the seat next to Alan, shared what he had heard from a friend. Alan should make his payments like this. Alan should at as much alimony in a lump sum and then decrease payment or end it during the first three calendar years following his divorce. Alan realized if he did this, he would have a great tax deduction.

His bar-"Buddy" was a genius!!! Why should Kim get all the benefits? If he had to give her his hard-earned money, he should receive the benefit of taking it of his taxes. Is there anything wrong with this brilliant idea? In your response, explain the tax implications of alimony.

Answer 1

The student should understand that along with other matters like dividing martial assets, parties should also discuss the implications of paying and receiving alimony payments. Any agreement that the parties may come up with must satisfy federal and state tax laws. Students can illustrate these requirements from the list of criteria found on page 426 of the textbook. Additionally, to thoroughly answer this question, there should be a discussion of the alimony recapture rule. When Alan and Buddy sober-up, somebody should tell them about this rule.