Question

Discuss the tax impact of getting a divorce in Texas

Answer 1

In Texas spousal support (a/k/a "spousal maintenance" or "alimony") is additional money, not part of a division of marital property or child support, that one spouse pays to the other temporarily from future income to support the ex-spouse after the divorce. If this money is also paid before the divorce is finalized, it is called “temporary spousal support”. Whether a former spouse receives spousal maintenance or alimony in Texas is more than a legal and economic question.

Texas has two types of spousal support: “court ordered spousal maintenance” and “contractual alimony”. There are tax advantages to spousal support for divorces completed on or before December 31, 2018. The paying spouse can deduct the spousal support payments on his or her taxes which allows the spouse to pay more than he or she could have otherwise. The payments are taxable to the spouse who receives the money. When the paying spouse is in a higher tax bracket than the receiving spouse, the difference stays in the family's collective pocket and out of Uncle Sam's. For that reason spousal support can be an attractive and creative settlement tool in divorce mediation.

For divorces finalized on or after January 1, 2019, the 2017 tax reforms eliminate the tax deduction for the payer of alimony/spousal maintenance and the requirement of the receiver to report these payments as income. Any divorces finalized before the end of 2018 will continue to be governed by the old law and the deduction and income reporting will still apply. The deduction for alimony/spousal maintenance is a very important and valuable benefit, especially for the receiving spouse.