Recently divorced woman concerned about whether alimony is taxable

Is Alimony Taxable? Answers to Your Divorce Case

During divorce proceedings, a spouse will often want to know whether alimony payments are taxable. It’s an absolutely essential question that needs to be answered correctly; however, the answer isn’t so black and white.

Whether you are the payer of alimony or the recipient of alimony payments, it’s important to know the facts about alimony taxation in Texas. Then, you can gain a better understanding of how this will affect your taxes.

What is Alimony in a Divorce Proceeding?

First, it’s important to understand what alimony is — and is not. By definition, alimony means providing financial support to a spouse either during or after a divorce. Alimony isn’t automatically awarded; it is determined by the courts or a prior agreement.

Also, there is a common misconception that an alimony payment is a magical monthly lump sum payment that encompasses things like child support or property. They couldn’t be further from the truth. Alimony does NOT include the following:

  • Child Support
  • Property Settlements
  • Community income
  • An opportunity for the alimony recipient to claim the payer’s property

Different Types of Alimony Recognized in Texas

In Texas, there are two types of alimony. The first is contractual alimony, and the second is court-ordered spousal maintenance.

– Contractual alimony is spousal support agreed upon by the spouses themselves and granted by a judge in the final divorce decree. It’s also possible to settle on important matters during this negotiation, such as how long the payments will last and how much will be paid out.

– Court-ordered spousal maintenance is an involuntary alimony ordered by a judge. This type of alimony is not easily granted.

The person requesting spousal maintenance needs to prove that they will not have enough property or assets to meet their minimum needs to live reasonably after the divorce. They will also have to prove that they have made an effort to earn sufficient income during the divorce proceedings.

There are many other situations the court can consider when granting or rejecting alimony, including:

  • Granting in the case of a disabled child’s needs
  • Spouse is unable to support themselves due to a physical or mental disability
  • Supporting spouse was convicted of or found to have committed an act of family violence
  • Marriage lasted longer than ten years, and the receiving spouse is unable to earn enough income to support themselves

It’s important to remember that alimony can only be granted in the case of a previous legal marriage in the state of Texas.

Is There a Cap on Alimony in Texas?

One financial consideration regarding alimony applies to capped payments at the state level. Texas is considered extremely unique among other U.S. states because there is a limit – set by statute – to how much an alimony recipient can receive in payment. The cap is currently set at $5,000 per month or not more than 20% of the payer’s gross monthly income.

Due to certain life changes, the person providing payments can request to modify the alimony amount. Texas Family Code §8.057 allows the payer to ask the court to alter the payments, but the payer still needs to make any current payments until a modification has been granted.

Is Alimony Taxable According to the Law?

If your divorce was finalized after December 31, 2018, there is no longer a requirement to pay taxes on alimony, according to the 2017 Tax Cuts and Jobs Act.

Those who must pay alimony can no longer deduct the alimony payment from their taxes and those receiving payments do not have to pay taxes on their payment. Since this a relatively new law, it remains to be seen if there is a real benefit to this law change.

Earlier this year, the IRS issued a clarification regarding alimony or “separation” payments. The text of their clarification reads:

Beginning January 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse or includable in the income of the receiving spouse if made under a divorce or separation agreement executed after December 31, 2018. This also applies to a divorce or separation agreement executed on or before December 31, 2018, and modified after December 31, 2018, as long as the modification:

  • Changes the terms of the alimony or separate maintenance payments, and
  • States that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Talk to an Expert on Alimony During a Divorce

Divorce isn’t something that’s easy to go through. In reality, there’s a lot of emotional and physical impacts to consider. However, each step is easier to navigate when you are well-represented by an expert in family law.

I am committed to helping you understand each critical issue related to divorce and spousal maintenance (alimony) payments. I have helped individuals just like you in Fort Bend County, Brazoria County, and Harris County receive the legal support they need. Contact me today to get started on your case. I’ll help you ensure fairness in alimony payments.

Call my offices at 281-944-5485 or 979-267-7660 if you have more questions about whether alimony is taxable and how to navigate divorce proceedings in Texas. I’m here to help!