How tax law changes could impact divorce agreements

On Behalf of | Aug 28, 2018 | High Asset Divorce

Starting on the first day of 2019, those who get divorced in Texas or any other state will see a change to the status of alimony payments. For the first time since the Revenue Act of 1942 was passed, alimony will no longer be considered income to the recipient. It will also no longer qualify as a tax deduction for those who make alimony payments.

The change to the law may require changes to prenuptial agreements that were created prior to 2019. It may convince those who are close to finalizing their divorce to do so before the end of 2018. It is also important that those who receive assets in a divorce understand the true value of those assets. For instance, it may be better to take an asset worth $500,000 as opposed to $1 million if the $1 million is subject to capital gains taxes or other liabilities.

If a couple is going to split the value of a pension plan, it should be done under a qualified domestic relations order, or QDRO. Doing so allows a person to receive money and roll over the payments as if he or she had made the contribution on his or her own. Furthermore, the QDRO allows this to occur without triggering a taxable event.

Working with an attorney may be helpful in resolving asset division issues. Even if individuals agree as to how a home or retirement account should be divided, it may be necessary to do so under the proper structure. Legal counsel might talk more about a QDRO or help draft such a document. This may help former spouses avoid a taxable event or other negative consequences that could erode the value of a retirement plan or other assets.