For Texas spouses who are considering bringing their marriage to an end, timing is always an important consideration. That’s especially true this year for those who are anticipating a high asset divorce, since changes to federal tax laws will take effect at the end of 2018. Specifically, spouses who are tasked with paying spousal support will no longer be able to claim those expenses as tax deductions.
Currently, spouses who pay alimony are able to claim the full value of those payments as tax deductions. The spouse who receives alimony must claim those funds as taxable income. Once 2019 begins, however, alimony will become “tax neutral,” meaning that there will no longer be a deduction or a requirement to treat the payments as income.
That can make a big difference in the bottom line for some spouses who pay significant alimony. Because the new rules don’t take effect until the end of the year, there is a shrinking window of time left to take advantage of the old rules. It’s critical to begin the process now, however, as it can take months to iron out the details of a high asset divorce.
For those in Texas who are certain that their marriage is headed for divorce, filing now rather than later can lead to significant tax savings since the law does not impact existing divorce judgments. Don’t underestimate the length of time it takes to negotiate a high asset divorce. It’s also important to understand that as the deadline nears, spouses who plan to receive alimony have a strong negotiating tactic when it comes to matters of timing.