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Tax law changes and divorce

On Behalf of | Oct 9, 2018 | Divorce

Couples in Texas who are considering a divorce may be interested to know that certain important changes due to the Tax Cuts and Jobs Act will become effective in 2019. This means that couples have until the end of 2018 to get a divorce if they do not want to be bound by the new rules for how alimony and child support will be treated.

One of the changes brought on by the TCJA is the elimination of the value of the dependent and personal exemptions. It also increased the amounts of the standard deductions. As a result, determining who will be able to file as head of the household is very likely to be an issue that is discussed during divorce negotiations.

Alimony is another aspect of divorce that is significantly impacted by the new tax law changes. For divorce agreements that are finalized after Dec. 31, ex-spouses will no longer be allowed to deduct any alimony paid and won’t have to report any alimony received as taxable income. Ending the deductibility of alimony means that couples who divorce will not have to work to structure their alimony to be in compliance with tax laws. After 2018, alimony will be treated as a simple transfer of property in accordance to divorce settlement terms and will have no income tax consequences.

A divorce attorney can work with a client to determine how the changes in the tax laws may impact their particular divorce case. Depending on the circumstances of a client’s divorce, the attorney may recommend finalizing the divorce before the end of 2018 so that the settlement terms are more favorable.