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How tax changes may impact future divorce cases

On Behalf of | Aug 22, 2018 | Divorce

Divorces finalized in 2019 and later will be subject to new alimony rules created by the Tax Cuts and Jobs Act. Texas residents and others who receive alimony in 2019 and beyond will no longer be able to count those payments as income. The person who makes the payment will no longer receive a tax deduction for it. In some cases, this may result in a lower alimony payment.

It could also mean that those who receive alimony will need to find another source of income to contribute to a retirement account. However, a change to how alimony payments can be made may mean that some ex-spouses see a less drastic reduction in the spousal support that they receive. Currently, alimony payments can only be made in cash. However, they will now be allowed to be made with funds in a retirement account.

This means an individual will be taking money out of an account that he or she would otherwise have to pay tax on. For those who are 59.5 and older, they will pay income tax when they take the money out of the retirement account. Depending on a person’s financial situation, it may be worthwhile to ask that payments be made partially in cash and partially from a retirement account.

The use of prenuptial agreements may make it easier for couples to come to an agreement regarding spousal maintenance or other financial support matters. Absent such an agreement, an individual may work with an attorney to create an equitable divorce settlement. This may be negotiated through mediation or created by a judge in a formal trial. In some cases, an equitable settlement might result in one person obtaining a larger portion of marital assets in addition to spousal support payments.