The new year is going to bring new tax laws — and that’s likely to make divorce a lot more expensive for some high-earners.
In particular, the changes in the tax code taking place in 2019 affect the way that spousal support is treated for taxation. Under the current law the person paying the alimony is able to deduct it from their taxes. Since that person is typically a high earner with income that vastly exceeded that of their ex-spouse, the deduction is often enough to lower the taxpayer’s overall tax rate. That has often encouraged high earners to be somewhat generous with their alimony agreements.
Under the new law, spousal support is no longer deductible. It has to come out of a payer’s net income rather than the gross. For the roughly 600,000 people already claiming the deduction, the law won’t change how they are required to handle their taxes. They’re given an exception since their support agreements were in place prior to the law’s change.
Everybody else, however, won’t be as fortunate. In addition to affecting high-income payers whose divorces are finalized in 2019 or later, the change in the law is also likely to complicate an untold number of prenuptial agreements already in place. Most prenups that provide for spousal support payments were probably written assuming that the alimony tax deduction would remain in place — not abruptly changed.
If you are in the process of crafting a prenuptial agreement, it’s smart to pay attention to the upcoming changes in the tax law. Your Texas family law attorney can provide valuable assistance.