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Tax law changes could affect divorce filings

Higher income couples in Texas who are contemplating ending their marriages may consider finalizing the divorce in 2018 to avoid changes in the federal tax code. One of the bigger ones is going to be how alimony is treated for tax purposes.

Currently, alimony payments are treated as taxable income to the recipient and deductible by the obligor. For those with a large difference in income, alimony had long been a negotiating chip in divorce proceedings. The one advantage to paying alimony was the tax deduction.

A divorcing couple may be willing to forego a 50-50 split on property division in exchange for an alimony payment. Since child support payments are not deductible, an obligated party may be willing to pay alimony in exchange for a lower child support payment. The tax deduction was often a key in fashioning agreements like this. This type of strategy was often used where parties would be in different tax brackets post divorce. The deduction would mean a great deal to the party in the higher bracket. However, those strategies are likely to change now. Alimony payments will no longer be deductible for the person required to pay, but this provision of the Tax Cuts and Jobs Act only affects divorces finalized after 2018.

For people who are contemplating divorce and where alimony is likely to be part of the settlement, contacting a family law attorney should be done sooner rather than later. The attorney can then look at the incomes, expenses and property of the parties to determine how much of an effect the new tax law will have on the situation.

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