Are Divorce Attorney Fees Tax Deductible in Texas?

• Can I deduct divorce attorney fees on my Texas taxes?
• Are any divorce fees tax deductible in Texas?
• References

Attorney fees resulting from a divorce in Texas aren’t usually tax deductible. Sometimes, legal expenses that occur because of a divorce do end up being tax deductible, but this is usually for expenses that are peripheral to the divorce, such as if one owns a business and needs to pay a legal expert to help determine how the divorce might impact that business. Even then, the circumstances where fees are tax deductible are fairly limited. 

Can I deduct divorce attorney fees from my Texas taxes?

The topic of when attorney fees are considered tax deductible is fairly complex. The majority of legal fees you might incur during a divorce would not be considered tax deductible in Texas or anywhere in the U.S. Services such as legal counsel on how to represent your interests in court and actual representation in court don’t typically qualify. For most divorcing people, these represent the majority of legal expenses incurred as part of their divorce. 

Why is this the case? Part of it is due to the Tax Cuts and Jobs Act (TCJA). This law significantly changed many elements of how taxes work, especially regarding divorce. Previously, a client whose attorney was to receive a cut of a recovery earned in court wouldn’t need to pay taxes on the entire recovery sum. However, this is no longer the case.

Potential reasoning

As for why particular fees aren’t tax deductible, this is again a complex and controversial topic. Things that reduce a person’s tax burden, like deductions, are generally used by the government to encourage or otherwise reward particular behaviors. 

While divorce is increasingly accepted as a valid option you might use if you are unhappy in a marriage, the government generally doesn’t want to encourage the idea that someone should enter or exit a marriage arbitrarily. 

Are any divorce fees tax deductible in Texas?

Some of the most common types of fees you might incur during a divorce in Texas that are tax deductible include the following:

Standard business expenses

Legal fees incurred as part of the ordinary and necessary expenses of running a business are often tax deductible. A divorce won’t necessarily cause these expenses to change, but it certainly could, especially if the business was previously owned by the two divorcing parties. 

Depending on the changes caused by the divorce, a business model could change radically, such as if one party will no longer be working at the business or if the business is split in some way. 

Business tax advice

Personal tax advice isn’t typically tax deductible. If you pay a lawyer to help you understand the basic tax implications of your divorce, you won’t necessarily be able to get a deduction. However, business tax advice, including advice (or more direct help) on how to resolve tax issues and problems and prepare forms is often tax deductible. 

As we discussed, a business owner getting a divorce might need to determine if divorce will impact their business taxes. This business owner needs to separate expenses incurred for personal tax advice and expenses incurred for business tax advice.

Even if you use the same lawyer or financial expert for both your personal and business affairs, that lawyer will typically want to be billed separately for the two services. The reason: Despite sharing many similarities, one service is rarely tax deductible, and the other usually is. 

Suggested: How 2017's Tax Bill Changed How Alimony Is Taxed

References