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Impact of tax overhaul on alimony

Texas couples who are divorcing or considering divorce might be concerned about the way the tax overhaul will impact alimony payments. As the effective date of the changes affecting alimony has been pushed back to the beginning of 2019, the pressure has been eased for some. However, couples that begin the divorce process or sign separation agreements in 2019 will be affected.

The current tax implications for alimony are that the person paying can deduct the amount and the person receiving the money must claim it in their taxes. However, the IRS has been concerned with discrepancies, since 361,000 filers claimed the alimony deduction, but only 178,000 reported they received alimony in 2014. The new tax overhaul seeks to address this discrepancy. Lawyers, however, are concerned that the new tax implications will mean wealthier spouses will be reluctant to pay more alimony to their less-wealthy exes since they will lose their tax break.

While the changes will not affect divorces that begin before 2019, in some states the alimony guidelines will need to be changed, as they include stipulations for the tax deduction. As well, some prenuptial agreements include the tax deduction as part of their alimony stipulations and these will also have to be addressed. The House Ways and Means Committee referred to the tax deduction as a tax subsidy for divorced couples and argued that alimony should be handled similarly to child support, which the paying parent cannot deduct and the receiving parent does not need to report.

Alimony payments are just one of the aspects couples must negotiate during a divorce. Residents who are considering divorce might also consider seeking assistance from a family law lawyer, who can provide guidance about legislation and upcoming changes that might affect the negotiations and help the person during the process.

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