Texas courts cannot order alimony but the parties can agree on contractual alimony. However, with the passage of the new tax legislation by Congress, the laws have changed. Specifically, no state will have contractual alimony that is tax deductible to the Payor and taxable to the payee after December 31, 2018.
Contractual alimony has long been a way where a spouse could buy out the other spouse’s interest in a property or business. Alimony allowed the paying spouse to deduct the payments to the former spouse from his or her tax return while mandating that the former spouse recipient declare such payments as income thereby paying tax on those amounts. Effectively, this allowed the shifting of income because the person buying the other out of the property or business is typically in a much higher tax bracket than the person receiving the payments and that person‘s tax bracket.
There are thousands, if not hundreds of thousands, of pre-marital agreements and post marital agreements that have been executed in our country. The majority arrange for an exact amount of alimony or a formula by which you configure alimony should the parties ever divorce. The real question in the future will become whether the alimony payments in those signed and executed marital property agreements will, under the new law, remain tax deductible to the Payor and taxable to the payee. This will be an area of litigation for sure, that will last many years if the new tax law remains as is.