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New tax laws carry consequences for those considering a divorce

People in Texas and elsewhere who are contemplating a divorce may face urgent decisions that necessitate an immediate meeting with a family law attorney. The changes in the tax laws enacted by the U.S. Congress call for some of the new provisions to become effective at the beginning of 2019. Several of the changes may impact on whether to facilitate a divorce settlement prior to this coming Dec. 31.

The most publicized change involves the elimination of the alimony deduction for alimony payments made to a former spouse. Internal Revenue Service statistics from the 2010 tax year show that nearly 600,000 persons took alimony deductions that year for a total of more than $10 billion. This reverses a popular feature of divorce settlement agreements that has been available since the Revenue Act of 1942.

Under the existing laws, those who receive alimony are supposed to report it as income on their returns. IRS statistics show that almost half of those recipients did not report the payments as income. The elimination of the deduction in the new regimen is accompanied by a like elimination of having to report such payments as income, which Congress intends to be a remedy for the problem of under-reporting.

The change may, however, end up being an exercise in trading one negative outcome for another that may be worse. The changes are expected to hurt women and children, the main recipients of alimony in Texas and nationwide, because those who would pay it are expected to propose to pay nothing or much less now that there is no deduction. Those who are currently contemplating a divorce are well-advised to consult with an experienced family law attorney immediately to determine whether a filing in 2018 would be necessary or advisable. At the same time, one will have the benefit of discussing other relevant changes that are slated to become effective due to the tax law changes.  

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