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In a high asset divorce, planning is key

As the effective date for new legislation regarding alimony and taxes approaches, Texas couples who are seeking a divorce and negotiating a settlement might be concerned with completing the process before January 1st, 2019. Alimony, which could previously be deducted by the payer and reported by the receiver, will no longer count as a deduction for the payer. This means that in some cases the payer will find themselves in a higher tax bracket than before, while still having to pay alimony. However, if the agreement is finalized before the effective date of the changes, the divorce can be grandfathered in with the old legislation applied.

For couples going through a high asset divorce this means that careful planning needs to be balanced with the benefits they are seeking. While the motivation might be there to finalize the divorce before the end of the year, it is also important to make sure the deal makes sense and is beneficial in the long run. To begin, each person needs to be clear about what they really want and what they are willing to give up. They should also be aware of the same for their ex-spouse.

If a final agreement by the end of the year is not possible, couples can work together to redistribute their assets so that they can gain back some of what they will lose through the new alimony legislation. One way, for example, is for the spouse who earns a higher amount to keep the taxable assets, including cash, bonds and stocks and for the lower-earning spouse to get the tax-deferred accounts, such as IRA and 401(k)s.

They may also work together with a lawyer with experience with family law who can explain how the legislation works and the impact it will have on the couple's agreement in the long term. A lawyer might also provide representation during negotiations.

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