Paying alimony or maintenance after a Texas high asset divorce can cost tens of thousands of dollars for high earners. Yet there may be options available to parties in a high net worth divorce to limit the amount of taxes paid on alimony. Once you know that your spouse is entitled to receive maintenance under Texas law, you will likely be wondering whether there are ways to limit the amount of taxes that you will pay on those alimony payments. Indeed, since the payor spouse is responsible for taxes on the maintenance payments, those taxes can be significant.

While a court order for maintenance does not provide options for minimizing maintenance taxes in a high net worth divorce in Texas, entering into a marital settlement agreement with your spouse in which you provide an alternate form of compensation in lieu of maintenance payments could allow you to minimize taxes substantially. There are certain methods for reducing or minimizing alimony taxes for the wealthy, discussed below.

Minimizing Taxes on Maintenance in Austin, TX

Texas law caps maintenance payments at $5,000 per month, Yet even taxes on payments of $5,000 are probably more than you would like to pay. As we said above, there may be options to reduce the total amount of taxes you will pay. Options that may be available include but are not limited to the following:

Late last year, Congress passed the Tax Cuts and Jobs Act, which made significant changes to the deductibility of alimony payments. The recent amendments could have a serious impact on Texas couples who finalize their divorces next year, so if you are considering filing for divorce, it is critical to contact an experienced high asset divorce attorney who can explain the legal ramifications that the new law could have on your own divorce.

Alimony Basics

Except in specific circumstances, the amount of alimony that a former spouse can receive in Texas is capped at:

Although spousal support is usually described merely as alimony, there are actually three types of spousal support recognized under Texas law. Each type comes with its own set of conditions and requirements, which determines who is eligible to receive support and for how long they can continue receiving it. If you are going through a divorce and have concerns about your financial future, you should consider consulting with an experienced high asset divorce lawyer who can help you determine whether you qualify for spousal support.

Temporary Spousal Support

Temporary spousal support is usually granted by the court when one party is unable to financially support him or herself while the divorce is still pending. Temporary alimony payments can be made every month or in a lump-sum payment. Which type of payment, how much the recipient is eligible to collect, and for how long he or she can continue receiving payments depends on a number of factors, including each party’s ability to support him or herself, each spouse’s employment skills, and both party’s earning ability.

In Texas, courts can order spousal maintenance if a party can establish that he or she lacks the ability to provide for his or her reasonable needs because of an incapacitating physical or mental disability. Demonstrating a disability for the purposes of receiving maintenance can be difficult, so if you are considering a divorce and have questions about your eligibility to receive alimony, it is critical to contact an experienced complex divorce attorney who can explain your rights and legal responsibilities.

Establishing Disability

Before a court will award spousal maintenance based on disability, the party seeking alimony must first provide evidence of a physical or mental disability. This does not necessarily require the submission of medical evidence. Instead, a party can demonstrate his or her condition through circumstantial evidence and the testimony of witnesses. For instance, when attempting to establish disability, courts will take into consideration a series of factors that can be deduced through testimony, including whether the party seeking maintenance has attempted to secure employment in the past or is currently receiving any form of income. Providing this type of evidence is often necessary to demonstrating a link between the party’s disability and his or her inability to sustain employment. Without this link, courts are often reluctant to order payment of spousal maintenance based on disability.

Aside from custody issues, one of the most contested matters in a divorce proceeding is property division. As part of determining which party will be granted ownership of certain assets, courts often take into account whether one spouse will be required to provide the other spouse with periodic maintenance payments. Determining whether a spousal support award is appropriate can be a difficult matter to resolve and can also have serious financial repercussions for all parties, so if you are considering filing for divorce and have questions about how your marital property will be divided or whether you will be eligible to receive spousal support, please contact an experienced high asset divorce attorney who can help explain your legal options.

Establishing Eligibility

A party can only obtain spousal support if he or she can satisfy specific eligibility requirements. For instance, a party requesting support must provide evidence that he or she lacks sufficient assets to provide for his or her reasonable minimum needs and: