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New Tax Bill May Lead to More Divorces

The new tax reform bill is bringing sweeping change to several legal fields, including divorce. Starting in 2019, the Tax Cuts and Jobs Act will result in the elimination of the deduction for alimony payments. This looming change is leading many divorce lawyers to counsel clients considering divorce to act before year’s end. Our Austin, Texas divorce lawyers discuss the upcoming tax reforms that could impact your divorce below.

Alimony Deductions to Be Eliminated

Under current tax laws, alimony payers can deduct the expenses they pay from their federal taxes. The recipient spouse must include the alimony as income. For high earners, the alimony deduction can be quite substantial. In some cases, alimony payers may be paying just 60 cents for every dollar they pay due to the tax deduction.

As of December 31, 2018, the alimony deduction repeal will take effect. Elimination of the deduction could have far-reaching consequences for divorcing couples. High earners may be less willing to accept alimony payments, knowing they will not receive a tax break for doing so. This could lead to increased acrimony among the divorcing spouses. Critics of the tax bill worry that repeal of the deduction could disproportionately affect women, who tend to earn less and receive alimony more often.

Consider Acting Before the Law Changes

If you are planning to file for divorce in the near future, it may be wise to consult with a divorce attorney now and consider filing sooner. In Texas, divorcing spouses must wait at least 60 days after the filing of the divorce petition before the court can grant the divorce. This is known as a cooling off period, and most states have a similar provision. As such, if you want to meet the December 31st deadline, now is the time to act.

If you are an alimony recipient, you may be able to use the alimony deduction repeal as a bargaining tool to achieve the divorce outcome you desire. Payer spouses may further be more willing to accept a higher alimony amount so that the divorce can be finalized before the tax bill change. Couples in the midst of signing prenuptial agreements will also want to consider how the tax bill may change their desires when agreeing to a set alimony amount in the event of a divorce.

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