No Man’s life, liberty, or property are safe while the legislature is in session. ~ Gideon Tucker
For as long as anyone can remember, alimony has been tax deductible. In Texas, we do not call it alimony instead, it is referred to as Post Divorce Maintenance (Chapter 8 Texas Family Code). Post Divorce Maintenance meets the requirements of Alimony under the Tax Code for IRS purposes. Alimony is the more common term, so I will use it here.
Alimony is money paid by one spouse to the other after the dissolution of the marriage. There can be many reasons for a court to award it. For instance, sometimes one spouse makes significantly more money than the other. Part of the reason for this is because that spouse attended a professional school (such as law school, medical school, or dental school) while the other spouse worked to put them through school and took care of the house and children. Most states do not allow the non-moneyed spouse to have an ownership interest in a professional practice. So, upon the dissolution of a marriage, to make the property and marriage more equitable, the court may award alimony.
Alimony has always been tax deductible to the payor and treated as taxable income received by the person receiving it, because they no longer have the money available to them. This worked favorably for both parties, because it allowed the professional practice to remain intact, without taking on a large amount of debt to pay the other spouse. It also had favorable tax implications because it reduced the marginal tax bracket of the payor, taxing at the lower bracket of the person receiving the alimony.
In 2016, President Trump ran a campaign based on, among other things, reforming the Tax Code. In 2017, the Legislature obliged him by passing one of the most significant tax overhauls in years. Each term among the items introduced functions to remove the home mortgage interest deduction. Most years it gets nowhere, but this year it got closer. However, one of the items passed was the elimination of the deduction for alimony, which no one saw coming.
Starting in 2019, alimony will no longer be tax deductible for the person paying. This completely changes the landscape for persons divorcing. This last summer, at the Advanced Family Law Seminar, I spent one-half of my time attending seminars on the changes. I almost always involve accountants and financial planners in divorces that involve financial assets, as I believe any good lawyer would. However, with these changes to the Tax Code, I believe their help will be more important than ever in an effort to make divorce less taxing.
If you find yourself considering a divorce, make sure to interview multiple attorneys and make sure they work with other professionals to minimize the disruption to your life.