The financial aspects of a Texas divorce have always been some of the most intensely contested, from asset division to spousal support. Alimony payments are often a contentious issue in divorce negotiations and courtroom challenges. However, with changes in the tax bill passed in December 2017, divorcing couples may soon face an even more complex and changing system.
Each state has its own approach to alimony, including the amount and the duration. Despite the general state guidelines, federal tax law has always provided a uniform treatment of alimony payments. They were deductible by the payer and deemed taxable income to the recipient. However, under the new law, for divorces that are finalized after Dec. 31, 2018, this will no longer be the case, and alimony payments will neither be deductible nor taxable.
Divorce attorneys have noted that there is a significant amount of confusion that has followed the announced changes; standard algorithms used to determine alimony payments will require rethinking. There are some more complex effects as well. Recipients might not be able to contribute all or a portion of their alimony payments into a traditional individual retirement account.
Some people have now decided that they might not want to wait to file for divorce because of these pending changes. The new tax law could also have an effect on the amount of alimony that is awarded by a family law court or offered during negotiations or mediation. In any event, divorce attorneys will now have another aspect to consider when they are providing representation.