Little Known Traps Property Settlement Pitfalls The IRS has some very specific rules regarding alimony deductions.  If your settlement agreement calls for a step down in alimony during the first 3 years of more than $15,000, the IRS could reclassify those reductions as "property settlement" and require you to recapture those payments as income and calculate  tax on them.  Also, if alimony payments are scheduled to be reduced when your child graduates (or marries, or leaves home), the IRS could reclassify that amount as child support and require that you recapture that amount all the way back to the beginning! Second Wife's Shortfalls If you're remarrying, and you divided your pension with a QDRO, there might be a provision in your agreement that your previous wife would receive the survivor's benefits.  If this is the case, you might think of protecting your new wife's interests with an additional life insurance policy. Family Support is Tax Fraud If you are paying family support which includes child support, the IRS will be able to determine how much is actually deductible if you are audited.  The rules specifically state that child support is NOT deductible, so by lumping spousal and child support together, the tax laws are not being followed.  This can lead to a substantial recapture AND penalties. Modification Rights Did you know that you can request your ex's financial information every year?  A Modification of support is warranted if EITHER party has had a significant change of circumstances.  Also, if you suddenly lose your job it is crucial that you file a motion for modification immediately.  A delay could lead to thousands of dollars in arrearages, with penalties of 10%, and possible jail time.