The Tax Cuts and Jobs Act, or TCJA, may mean lower federal tax rates and a higher limit for the Alternative Minimum Tax for some individuals in Texas, but it could also make divorce more expensive for soon-to-be-exes. This is especially true if children are involved since the TCJA eliminates the value associated with personal and dependent exemptions. Alimony payments will also be considered a simple property transfer without tax consequences for either party.
The TCJA also increases standard deductions among all tax statuses, including single filers and Head of Household. It's HOH, in particular, that may now be a significant settlement issue in any divorce that takes place after the TCJA takes full effect in 2019. The HOH parent will be able to claim an expanded $2,000 Child Tax Credit for each qualifying dependent child. This includes $1,400 that's refundable for HOH filers who owe income tax.
In order to claim HOH, a parent would need to have a dependent child who lives with them more than half of the year. They would also have to still be unmarried and pay more than 50 percent of household expenses. Previously, parents no longer married were able to alternate claiming children as exemptions. Because of this ability, exemptions were typically an important part of separation agreements. However, under the TCJA, exemptions will no longer reduce taxable income. Only one parent can claim HOH if a couple has one child. With divorce agreements signed on Jan. 1, 2019, and forward, alimony will not be deductible by the payor or taxable for the recipient as income.
With a divorce that will take place when the new tax guidelines apply, an attorney may prepare an agreement with a certain degree of flexibility. For instance, since it's not known if the Child Tax Credit will still be tradeable, a lawyer may negotiate as if it will not be tradeable and include a stipulation that states this is subject to change. A divorce lawyer might also play an important role in working out issues with joint assets, marital property, custody arrangements and support payments.