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Question: Does the software flag alimony or spousal support that is "clearly associated with a contingency" -- the so-called "contingency rule"?
Answer: In a word, no, the software does not flag the contingency rule.
Some background:
If alimony is clearly "associated with a contingency" in the life of a child, that alimony may be recharacterized as child support.
The reason for this rule is to prevent people from deducting for tax purposes payments that effectively are child support (child support is not deductible).
Here is how the IRS expresses this rule:
Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations.
The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority.
The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. This certain age must be the same for each child, but need not be a whole number of years.
The "certain age" can include graduation, starting work, and other milestone events.
In a situation with a single child, this rule is not too difficult to apply.
But when there are a number of children, and possible events such as children graduating or starting work, the dates of which the software does not know, the permutations become too numerous for us to manage programmatically.
For this reason, the software does not attempt to flag these contingency events.
To do it yourself, here is what you need to do:
Get a calendar and mark all the dates of "significant events," which include turning 18 or 21, graduating college, and starting a job.
Mark those dates for each child on your calendar.
Now, for each date, shade a 6-month window on either side.
Then, if spousal support payments stop or are reduced on any shaded date, the spousal support payments are subject to being recharacterized as child support.
That's the first test.
Now the second test, which can only apply if there is more than one child.
Pick an age, say 18.
On your calendar, shade a region one year on either side of the first child's 18th birthday.
Then shade a region on either side of the next child's 18th birthday.
Repeat for each child.
If support is reduced once in the first region and again in the 2nd region, the payments are subject to being recharacterized as child support.
If not, you're not done!
You have to repeat for every possible age, 18, 19, 20, 21, 18 1/2, 18 3/4, etc. If there is any age you can pick, where this exercise would show reductions in spousal support in your shaded regions, then the spousal support payments are subject to being recharacterized as child support.