New tax law could mean bad news for divorcing couples
If you are on the fence about your marriage, now is the time to make a choice
HOUSTON – The tax law overhaul signed by President Donald Trump put money back into the pockets of many Americans, but in any tax plan, there are winners and losers.
One area where Uncle Sam is taking away is alimony, also called spousal support in Texas.
The statistics haven't changed, as nearly half of all marriages end in divorce, and divorces could reach a record this year because of a change in the tax law taking effect next year. The new tax laws will change how it's reported and how it's deducted.
"There is going to be a lot of races to the courthouse," says divorce attorney Matt Hunt.
Hunt says if you are on the fence about your marriage that now is the time to make a choice.
"If alimony is a consideration in your case, I would say yes," continues Hunt.
Starting in 2019, you can't write off alimony payments on your taxes, and if you receive alimony you won't have to report it as income. As it stands today, it's just the opposite.
While at first glance this looks great for the person getting alimony, when you take a deeper look it's not so great.
"Now that tax burden has shifted to the payer, they no longer get a break. So for them to now afford alimony, it's going to be a lower amount, which means the recipient is going to get less," says Hunt.
Michelle Barron is a certified financial planner who has a lot of clients who pay alimony. "If you have a larger pie, you're going to get a larger slice. If you have a smaller pie, you're going to get a smaller slice. Once that deduction is gone, there's going to be less money to go around."
Barron is now telling clients considering divorce to finalize the agreement before the end of the year.
"We had the government who was trying to come up with ways to reduce taxes. They have to come up with that money from somewhere, and they picked this group. The government wins. The government is always going to win," says Barron.
"There's less money to go around for either one of us, and more is going to the government. So let's negotiate a deal or get before the judge prior to January 2019," says Hunt.
Experts even say that wait to fall under the new tax law will have a more difficult time.
"I think it's going to be harder. When it comes to the division of assets, I think they have less negotiating room now," says Barron.
Many divorce lawyers are also finding out about this change and they're trying to spread the word. If you already have a divorce agreement, or you sign one before the end of 2018, it will be honored under the old tax laws.
Copyright 2018 by KPRC Click2Houston - All rights reserved.