Many spouses who are facing a divorce are concerned with their ability to take care of themselves from a financial standpoint. Many people face circumstances that are far from desirable at the conclusion of their marriage. For instance, if you have been a stay at home spouse for the duration of your marriage it is likely a daunting situation to need to re-enter the workforce for the first time in decades after your divorce. That may be true in the extreme if you have never worked before and are needing to find a job for the first time.
It is possible for you to be awarded spousal maintenance in a divorce case in Texas. There are also opportunities to negotiate for contractual alimony in situations where you and your spouse can agree to have that kind of support be a part of your settlement. Today’s blog post from the attorneys with the Law Office of Bryan Fagan will discuss that subject and provide some details and context so that we can have a wide ranging and fruitful run-down of this important topic in Texas family law.
Changes in the laws regarding how spousal maintenance and contractual alimony are handled
As long as we are on the subject of money it makes sense to discuss how taxes will impact how contractual alimony and spousal maintenance are handled. The attorneys with the Law Office of Bryan Fagan are not tax experts, nor Certified Public Accountants, however. Please seek advice from people with those qualifications and do not rely solely or in part on our advice to guide your decisions in that area.
With those disclaimers having been made, I wanted to share with you some changes as to how contractual alimony and spousal maintenance are treated from a tax perspective. If you are getting a divorce after January 1, 2019 then this applies for you. The tax reforms that were enacted at the end of 2017 eliminate the ability to deduct from your taxes the payment of alimony or spousal maintenance. On the other hand, if you are the spouse who is receiving payments you must now report these payments as income.
The key to understanding this issue is to know when your divorce was finalized. If you and your spouse settled your case in 2018 but for some reason have not yet gotten divorced, then there is a chance that this new law does not apply to you. Again, I would speak with a Certified Public Accountant or other tax professional to see how your particular circumstances will work in this regard. Since the old system had payments of alimony being pre-tax, they then be invested into an Individual Retirement Account (IRA) in order to save and prepare for retirement.
Why all this matters- a hypothetical example to run through
Let’s suppose that your ex-spouse is going to be on the hook for paying your spousal maintenance/contractual alimony but can only afford to pay you $750 per month. Their income tax rate is 25%. Your own tax rate is 10%.
Under the old laws that allow for your spouse to deduct the payment of alimony/spousal maintenance your spouse would actually be able to pay you $1000 per month. This is because he would have a built in savings mechanism in the form of the ability to deduct the taxes. You would have to pay taxes at your ten percent rate on the $1000. When it is all said and done you would get a $900 per month benefit while your ex-spouse would only have a $750 liability.
How the new law treats this situation
Now the situation has changed. Your ex-spouse may still only be able to afford to pay you $750 a month in alimony/spousal maintenance, but now that will be the absolute maximum that can be paid to you. The bottom line will end up being the same for him, but the net effect is that you are getting $150 less per month as a result of the inability for your ex-spouse to be able to deduct those payments on his federal income taxes. It would be much better, therefore, to be under the old law even if you were taxed on that amount at 10 percent.
The key to understanding this side of the issue is that the more dissimilar your and your ex-spouse’s tax brackets are the more pronounced the changes in the law will be in your particular circumstances. If you and your ex-spouse already have a contractual alimony/spousal maintenance award in place from a divorce that was prior to January 1, 2019, it is recommended that you specify that you would want to go off of the old laws. That will need to included in your modification agreement and/or final orders that are signed by the judge.
Now that we have jumped into a specific portion of the laws on spousal maintenance and contractual alimony let’s go back a few steps and re-introduce the topic. We can provide some basic information that will allow us to discuss more intricate details later on in our conversation.
Spousal Maintenance and Contractual Alimony
I guess the cat is out of the bag, given that we’ve spent about 800 words discussing the tax implications of these two subjects, but Texas law does allow for the payment of contractual alimony and spousal maintenance in conjunction with a divorce. Spousal maintenance and contractual alimony are both payments from one spouse to another after the divorce has concluded that allow for temporary income to be paid.
We see payments like this go on during a divorce and are known at that stage as spousal support. A difficult part about the award of spousal maintenance and/or contractual alimony in a divorce case is that courts are not easily swayed to order it, and parties are not easily made to agree to its payment. It is only since the mid 1990s that judges in Texas were empowered with the ability to award spousal maintenance in Final Decrees of Divorce.
The emotional impact of paying spousal maintenance
There is a lot more to a divorce than just money and kids. There are emotional components to a divorce the importance of which cannot be underestimated. If you are in the position where you are going to need to ask your spouse to pay you alimony or maintenance that is surely not a discussion that you are excited about initiating. It is likely necessary, however, if you do not have a college degree, suffer from a disability of some kind, are raising children and/or one of those children have a disability of their own. As we discussed at the outset of today’s blog post you may have worked for a living while you were younger and have since left the job force in order to remain at home to help raise children.
On the other hand, you could be looking at this issue from the opposite vantage point as the spouse who will likely be asked to pay the spousal maintenance. While you may not no ill-will in particular against your soon to be ex-spouse, it probably ruffles your feathers to some extent knowing that you will be paying child support and may have to pay spousal maintenance as well. It is likely the case that you were the main provider for your family during your marriage and are now facing a period of time where you will be providing for your ex-spouse after your divorce.
Don’t look back and attempt to assign blame for decisions made during the course of a marriage
One of the toughest aspects of being involved in a situation where you are either going to need to ask or going to be asked to pay spousal maintenance/alimony is that it causes many people to look back on their marriage with anger or regret. How could you and your spouse allow yourselves to be in a situation where it is necessary to pay spousal maintenance. It may have seemed like a good idea to have your spouse remain in the house to care for the children, but had you known that less than ten years later you would divorcing that person it may have changed your decision making.
However, I would caution you before you engage in that sort of thinking to understand that you and your spouse likely made those decisions based on what you thought was best for your family and yourselves. No reasonable person would decide to remain at home rather than to work as a result of an anticipated divorce a few years later. To make all of your decisions in a marriage based on an anticipated divorce is a pretty bizarre way to go about your decision making.
Rather you made those decisions based on what you knew at the time and what you believed would be best for your children and for yourselves. To think that you would have done something differently had you known then what you now know is an unfair standard to apply to yourself and to your spouse, for that matter. All you can now do is make the best of your situation.
The two parts of spousal support in Texas, explained
As we’ve touched on a few times in today’s blog post, there are two types of spousal support available to people going through a divorce. The first is court ordered spousal maintenance as well as contractual alimony. While are some similar aspects to each, for the most part they are different in terms of how much you can receive in payment, how long the order for either can last as well as how they can be modified down the road.
Court ordered spousal maintenance can only be ordered by a judge. Basically, this is involuntary alimony- the kind that a judge will need to tell you that you have to you pay your ex-spouse once the divorce is complete. Contractual alimony is voluntarily entered into by both you and your spouse. A judge will need to sign off on the agreement to pay alimony, however.
In what circumstances can court ordered spousal maintenance be paid?
It is not easy to convince a judge that you need to be paid spousal maintenance at the conclusion of your divorce. The recent addition of this law to the books in Texas represents just how much of a relative novelty spousal maintenance is in our state. Judges look at it from the perspective of just because he or she is able to award it to you, does not mean that he or she is necessarily going to award it to you.
The amount that you stand to receive in court ordered spousal maintenance as well as the length of time that it can be paid to you is relatively limited. You and/or your spouse can always head back to court to change or modify the language in the original order depending upon how your circumstances have evolved over time. Spousal maintenance is only awarded after a valid marriage. Common law marriages that end in divorce cannot have spousal maintenance awards attached to them.
How can you convince a judge to have your spouse pay you spousal maintenance? Find out tomorrow
We will continue our discussion of spousal maintenance as well as contractual alimony in tomorrow’s blog post. We hope that the information that we shared with you today is both informative and helpful to whatever situation you find yourself in.
In the meantime, if you have any questions about the information contained in our blog today please do not hesitate to contact the Law Office of Bryan Fagan. We offer free of charge consultations six days a week in which we can answer your questions and address your concerns in a comfortable and pressure free environment. A consultation with our attorneys is always free of charge and can go a long way to helping you figure out your next steps in whatever legal situation you are facing.
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Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding Divorce, it's important to speak with one of our Houston, TX Child Divorce Lawyers right away to protect your rights.
Our Divorce lawyers in Spring TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Houston, Texas, Cypress, Klein, Humble, Kingwood, Tomball, The Woodlands, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.