How Has the Tax Reform Impacted Alimony?

Divorce in Texas means many things. It means no longer being a couple. It also means assets and property are no longer shared. Finally, it means learning to be self-sufficient. Although most households have two working spouses, it is still common to have one spouse that makes most or all of the money. This can make it difficult for the other spouse post-divorce, as they may not have the funds to support them. In these cases, spousal support may be his or her best option.

How has the tax reform affected alimony? While divorce was always a difficult life event, it was often viewed as a necessary step for those realizing that marriage was no longer working. Due to tax reform, couples now fear filing for divorce as it will likely cause conflicting financial goals of the divorce process.

Tax reform will dramatically affect finances in any divorce or separation agreement executed after Dec. 31, 2018. In plain terms, it is likely that one spouse will take a big financial hit. Beginning Jan. 1, those paying alimony can no longer deduct this from their federal income tax. Because of this, many will seek to lock in their alimony terms before the close of the year. This allows them to be grandfathered into the existing rules that allow them to deduct alimony this year and each year into the future.

While those owing alimony may push to settle his or her divorce before the end of the year, those receiving spousal support payment may benefit from these changes. Recipient spouses will no longer be required to claim alimony as income. This means that they will not have to pay income tax on alimony. So, depending on which side a spouse finds him or herself on, it may or may not be beneficial to settle a divorce as soon as possible.

No matter what is at issue, divorce is not an enjoyable or pretty process. Most spouses do not see eye-to-eye on all divorce issues. This often requires divorcing spouses to negotiate a settlement, go through mediation or even take the matter to trial. No matter how the couple reaches a divorce decree, it is important that it addresses any and all family law issues as well.

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