Potential Tax Effect on Alimony Payments in Texas

The tax legislation is not finalized yet. But the version coming from the House of Representatives changes the present law which currently allows a tax deduction to the spouse making the payments and is taxable income to the recipient.

Many divorce settlements in Texas are reached through mediation where the divorcing couple and their attorneys try to reach agreement with the assistance of a family law mediator. There is sometimes a calculation and comparison of the benefit between an award of a portion of retirement accounts versus the guarantee of contractual alimony payments, which may be paid longer that what a Judge could order in Texas.

Prudent attorneys often include in the language of the mediation agreement that such alimony payments are tax deductible to the payer and will cause the income to be taxable to the recipient. By doing so, everyone is clear as to the tax effect of the payments, as compared to a property division which between spouses is usually not a taxable event.

With this potential change in the law, anyone considering a mediated agreement now that contains alimony provisions may want to talk to their attorneys and accountants as to the possible outcome and whether this agreement is in their best interest.