Texas Divorce Law...

Texas Law - May the Court Consider Tax Issues.

The court may consider tax issues both in setting alimony and in dividing the property, if the tax effects have already been realized or are certain to be realized.

The tax issues that arise most frequently are:

• Tax that would be paid if securities or mutual funds were sold.
• Tax that would be paid if the family home were sold.
• The deductibility of alimony to the payer and inclusion in income of the recipient.
• The non-deductibility of child support and non-inclusion in income of the recipient.
• The income tax exemption for a child, which sometimes may be given to either parent.

The court will be more likely to consider these issues if the proposed tax effect were fairly certain to occur.

Cases:

Grossnickle (1996) 935 SW2d 830 (it was all right for court to fail to consider that, if wife raided the Vanguard retirement account, she would pay a 10% penalty plus income tax on the amount she withdrew. This is because those effects were speculative at the time of the divorce and at the election of the wife after the divorce.)

Harris v Holland (1993) 867 SW 2d 86 (Some cattle, hay, bulls, and equipment was awarded to the Husband to repay him for contributions to community property that he had made during the marriage from his separate cattle, hay, bulls and equipment. Husband also requested that the reimbursement from community property be increased by approximately $54,000 to take account of tax consequences if the husband were to sell the property immediately. That is, the husband asked for a reimbursement in "after-tax" dollars of value. The court declined to do that, noting that husband had no plans to sell the cattle, hay, bulls, or equipment, and noting that if husband held them until his death, that there would be no tax to pay.)

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