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More Alimony Tools

Negotiate > More Alimony Tools

Alimony Recapture in this Case.

This screen shows the alimony recapture, if any, in this case.

The recapture rules cause alimony that had been deducted to be included in tax, if the structure of the alimony is such that the alimony paid could be recharacterized as a property settlement.

The determination is made solely by looking at the first three years of alimony payments, and how steeply they decline from the first year to the second year, second year to third year, and first year to third year.

This screen shows whether this penalty applies, given the alimony payments in this case.

There will be no recapture tax for alimony under agreements entered into in 2019 or later.

Alimony Recapture Calculator.

A calculator for alimony recapture in general.

This calculator lets you enter the alimony in the first three years, and shows what the recapture would be.

It is a “what if” calculator.

It assumes that all alimony is taxable to the recipient and deductible to the payer.

For agreements entered into in 2019 or later, recapture will not apply, and this calculator also will not apply.

Alimony Breakeven.

This calculator shows the amount of alimony needed to get the recipient to break-even, after all expenses that have been entered.

It is equivalent to using the Alimony Needed calculator, opening the calculator that shows Budget After Taxes and Expenses, and setting “0” as the target.

Alimony PV (Buyout).

This calculator shows the amount of alimony needed to “buy out” the proposed stream of alimony payments.

You can enter the actual alimony payments on the Client Info tab, on the screen where you enter child support, at the bottom, in a section entitled, “Amount to use….”

In most states, you can also enter alimony by clicking a link at the bottom of the Client Info > Income & Expenses > Living Expenses screen.

The result of the present value calcualtion is fully after-tax.

To get the present value of the anticipated stream of alimony payments, the software assumes that those payments could be invested at a fixed interest rate.

This interest rate is also known as the discount rate.

By default, the software uses a current 20 year Treasury Bill rate. The idea is that you want to model a completely-safe investment, and the 20-year Treasury Bill is as close as one can get.

If alimony is not taxable and not deductible in this case, then the only factor that will make the present value different from the sum of the actual payments is the interest discount rate.

This screen also has a what-if capability. At the top of the screen, you can enter an amount of dollars per month and a number of months. You would also clear the checkbox above those numbers, relating to using actual support.

If you do that, the screen will use the numbers you enter on this screen instead of the actual alimony entered in the software.

You can see a full explanation of the calculation by clicking the link labeled “Explanation” at the top of the screen.

Alimony After-tax Multi-Year.

This shows the aggregate after-tax cost of alimony over all payments projected to be made.

If alimony is projected to step down over time, those step-downs are taken into account.

Alimony Trade-Off.

This screen shows the combination of child support and alimony that minimizes taxes.

This is useful in situations where people can reasonably shuffle funds between alimony and child support, and want to pick the option that minimizes overall taxes.

For agreements entered into after 2019, this is not a useful tool, as neither alimony nor child support will have any tax effects.

Its use is also limited if the alimony and child support amounts will be four different terms, or you want to have step downs of one or the other.

For earlier agreements that are modified in or after 2019, for alimony and support would end at the same time, and you do not have step-downs, it could still be useful.

What you do is to enter the combined total of cash to be paid as alimony and/or child support, and the software figures out the best split, for tax purposes, between alimony and child support.

Most of the time, the best split is 100% alimony / 0% child support, because alimony was tax-deductible.

Family Support.

This calculator shows the impact of designating all support as alimony.

For agreements entered into after 2019, this is not a useful tool, as neither alimony nor child support will have any tax effects.

For earlier agreements that are modified in or after 2019, it could still be useful.