For Texas residents who are considering ending their marriages, the financial ramifications of that decision loom large. Understanding how divorce will impact one’s bank account is a top priority, for good reason. The recently proposed Republican tax bill could have a drastic impact on the tax obligations of many Americans.
Currently, spouses who are tasked with making alimony payments are able to claim those payments as a dollar for dollar tax deduction. Under the currently proposed Bill, however, that deduction will be eliminated. On the flip side, spouses who receive alimony payments would no longer need to claim that money as income. That could reduce the tax bill for recipient spouses.
Many spouses negotiate their divorce settlement with the alimony tax deduction in mind. In fact, some couples agree to a settlement in which a higher amount of alimony is paid in relation to child support, which does not enjoy the same tax deduction. It’s also important to note that many state laws center on the fact that alimony is tax-deductible, and a change could mean the need to revisit those matters.
For those in Texas who are preparing to divorce, it’s important to understand how the proposed Republican tax cuts could impact one’s bottom line. The alimony deduction could lead to thousands of dollars in additional tax obligation. If the bill is eventually passed and the alimony deduction is cut, anticipating those changes could help spouses maintain a stable budget as they move through the divorce process and beyond.
Source: bloomberg.com, “The GOP Tax Plan Could Make Your Divorce More Expensive“, Tom Metcalf and Christie Smythe, Nov. 8, 2017
