Does A Divorce In Texas Have Tax Implications?

Divorce can change your life in many ways. It is crucial that you are fully prepared for the financial ramifications of a divorce. Although ending a marriage can bring its financial challenges, the right plan can help you to come out in a strong, stable position in the long run.

Along these lines, you may want to know: Will a divorce impact my taxes? The short answer is that it can—but the effect will always depend on your specific circumstances. Here, our Houston divorce attorney highlights the key things to know about the tax implications of divorce in Texas.

Tax Filing Status 

A divorce can cause a significant change to the tax filing status. Prior to the divorce finalization, a couple may file jointly, often resulting in reduced tax obligations. After the divorce is finalized, each person must file separately as a single taxpayer. The change in tax filing status can potentially lead to increased tax liabilities, especially if one party earned significantly more income than the other.

 Tax-Advantaged Retirement Accounts

 Divorce can have substantial implications for tax-advantaged retirement accounts. For instance, if a portion of a retirement account is transferred to a spouse as part of a divorce agreement, this is typically done tax-free through a Qualified Domestic Relations Order (QDRO). However, if not handled properly, the recipient may be liable for taxes on the amount. Be sure to consult with an experienced Houston divorce attorney.

 Ability to Claim Child as a Dependent

 One of the significant tax-related issues in a divorce is deciding who gets to claim the child as a dependent. Typically, the custodial parent has the right to claim the child for tax purposes. However, through a specific agreement, the noncustodial parent can claim the child as a dependent, impacting both parties’ tax liabilities. It is a tax issue that divorce parents need to consider.

 Post-Divorce Payments 

There will also be tax implications associated with any post-divorce payments. Here is an overview of the key things to know about taxes:

• Spousal Support: Based on the reforms within the Tax Cuts and Jobs Act of 2017, spousal support (alimony) is not deductible by the payer and not considered income to the recipient. This is a departure from the previous laws where alimony was tax-deductible for the payer and taxable income for the recipient.
• Child Support: As explained by the Internal Revenue Service (IRS), child support payments are not tax-deductible by the payer, nor are they considered taxable income for the recipient. 

Call Our Houston, TX Divorce Attorney Today

At Lindamood & Robinson, P.C., our Houston divorce lawyers provide solutions-forward legal guidance and support. If you have any specific questions about the tax implications or other financial consequences of divorce, we are here to help. Call us now or contact us online for a fully confidential to arrange your fully private, no obligation consultation. With an office in Houston, we provide family and divorce representation in Harris County and all across Southeast Texas.

Source:

irs.gov/faqs/interest-dividends-other-types-of-income/alimony-child-support-court-awards-damages/alimony-child-support-court-awards-damages-1