The tax law enacted in December 2017 could be leading a number of Texas couples into ending their marriages more quickly. Approximately 800,000 American couples seek a divorce each year, and a provision in the law that could make spousal support payments more expensive could produce more filings in 2018. The provision will go into effect in 2019.
Divorce lawyers have reported an uptick in calls to their offices as people decide to move forward with formalizing their plans before the changes to the tax code. Especially for divorcing spouses with significant financial assets, the impact could be significant. Under the current system, people who pay alimony can deduct them, which can provide a significant assist to an overall tax burden.
However, for divorces finalized in 2019 or after, spousal support payments will no longer be tax deductible. This could also mean that the monthly outlay of support payments could be lowered for the recipient due to the change in the impact on the paying spouse. Divorces completed in 2018, however, will still function according to the existing rules throughout the payment period.
There is a flip side as well. Under the current rules, recipients of alimony must declare the payments as income on their tax returns. Starting in 2019, however, that will no longer be the case. No changes were made to the tax status of child support payments, which are neither deductible nor treated as income. It is expected that the alimony changes will have an impact on divorce settlement negotiations.