Divorcing couples in Texas may be interested in changes to the tax law that could affect them financially. Alimony will no longer be taxable or deductible after the new law takes effect in 2019. The change reportedly has divorcing couples and even some lawyers confused.
Alimony law has always been decided by the individual states. Regardless of the state, alimony recipients have needed to pay taxes on their alimony, and alimony payers used to deduct their payments on their tax returns. Under the new tax code, this will change for divorces filed after December 31, 2018. Alimony will no longer be deductible, nor will recipients have to pay taxes on it.
On the surface, that may appear to be good news for alimony recipients, who are usually women. However, it could actually reduce alimony payment amounts. A legal expert explains that not being able to deduct alimony payments could make it impossible for some men to afford as much alimony as they could have before the change. This might mean that judges will have to order lower payment amounts, and women will receive less even though they will not have to pay taxes on it.
The number of women paying alimony to their ex-husbands is on the rise. Generally, the spouse who earns the most income has to pay alimony. In any case, the new rules could hurt both spouses after a divorce. Experts say that some couples might rush to divorce before the end of this year to avoid the new law while others may consider staying together in an unhappy marriage for the sake of their financial security.
Financial matters in divorce can be complicated, particularly in high-asset divorce cases or when couples own a business together. Courts typically use certain formulas to calculate alimony payments, but the new tax law could change these formulas. Couples may want to keep in mind that when the decision of alimony is legally settled, it may be possible for it to be modified later at the request of either spouse.