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Divorce costs may rise with passage of TCJA

Tax changes made by the Tax Cuts and Jobs Act, which passed in 2017, could mean less money for Texas couples who are getting a divorce. There are different rules for alimony and for claiming children on their tax returns.

Alimony has traditionally been tax-deductible for the person who pays, and this often led to somewhat larger awards. The recipient had to pay taxes on it. Starting with divorce agreements signed after the end of 2018, alimony will no longer involve taxes at all. Experts say that even though it will no longer be taxable to recipients, they are likely to end up with less money overall because the payer will probably resist making larger payments that are not tax-deductible.

Divorced parents used to be able to use IRS form 8332 to trade off taking children as exemptions. While this is no longer possible, there will be a significant head of household deduction for the single parent who has a child in the home more than half of the time while paying more than 50 percent of expenses for the household. There is also a child tax credit that may or may not be tradable. Divorcing couples may want to have a settlement agreement that allows this to be traded if regulations permit it and that also accounts for possible changes in the applicable law.

Even couples who are divorcing and who do not have to negotiate alimony or child custody and support may have complex issues around property division. Certain types of assets, such as pensions or annuities, may have complicated rules that must be followed if they are divided. If one person owns a business, the other spouse could claim a portion of it. If there is a home and neither person can buy the other out, they may have to sell even if the market is not ideal.

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Law Office of B. Diane Heindel, P.C.
407 E. 4th Street
Tyler, TX 75701

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Law Office of B. Diane Heindel, P.C.