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YOUR FAMILY IS OUR FOCUS

San Marcos Texas Legal Blog

How to find tax benefits in divorce

| Jul 17, 2019 | Divorce |

In the past, people could deduct any alimony they paid from their taxes. Although recipients were taxed on received alimony, this arrangement generally resulted in less taxes being paid overall, which helped payers afford higher monthly alimony payments. Changes to the tax laws have made it so that people can no longer deduct any alimony payments. This means that a couple going through a divorce may have to look elsewhere to find tax savings.

A Texas couple who has investments that produce large gains could use those funds to offset the loss of any tax benefits regarding alimony. For example, if the gains from an investment are less than $39,475, it will not be taxed at all. One party might agree to accept the gains or the investment itself as a lump sum alimony payment, or in exchange for lower monthly payments. Since gains between this amount and $200,000 are taxed at 15%, offsetting alimony with capital gains that are not taxed can help reduce both taxes and minimize future payments.

While not everyone in Texas has investments that produce capital gains, many people have retirement savings. In divorce, it is usually possible to transfer retirement funds without taking any penalties or paying steep tax rates. A couple could choose to divide retirement savings in a way that accounts for either the entirety or a portion of alimony.

Minimizing the financial impact of a divorce is a priority for many couples. This includes finding tax benefits in what may seem like unusual places, such as property division of taxes, investments and more. Since protecting post-divorce finances is important, many people choose to speak with an experienced attorney about this issue.