Spouses in Texas who are thinking about divorce should consider the financial issues linked to the end of their marriage. Financial concerns often keep people in an unhappy relationship long after they first want a divorce. However, some of the most important financial issues that come with the dissolution of a marriage aren’t about which spouse walks away with which assets. Divorce can have a significant effect on taxes, so it is important to consider tax issues when going through the asset division process.
Tax laws are changing for people who finalize their divorces after the new year begins in 2019. Under the current tax structure, people who pay alimony can deduct that sum from their annual return while recipients of spousal support must pay taxes on the income. This will all change; instead, payors will no longer be able to deduct their support payments, and the recipient will receive the income tax-free. However, it’s not a boon to recipients; the tax deductions were a strong incentive to achieve a generous settlement in terms of spousal support. As a result, many couples are working to reach a final settlement before Dec. 31.
Taxation can also be a concern when dividing retirement accounts, often one of a couple’s largest assets. It’s important to obtain a qualified domestic relations order from the court when dividing a retirement plan; otherwise, both parties could be hit with an unexpected tax penalty. The order also must comply with the rules of the retirement plan to complete the asset division.
When people decide to divorce, there is an array of related issues that are also important to keep in mind. A family law attorney may provide advice on tax-related matters while working to achieve a fair resolution on issues like property division and spousal support.