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Overlooked Financial Issues During Divorce- Term Life Insurance

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Divorce is commonly seen as one of the most stressful experiences one will ever go through.  Along with all of that stress, you are also making financial decisions that will most likely affect the rest of your life and perhaps the lives of your children as well.  For that reason, it’s a good idea to get the advice of a Certified Divorce Financial Analyst™ or some other financial professional during your divorce process.

Handling of the Term Life Insurance

In a 2018 Insurance Barometer Study, by Life Happens and LIMRA, ONLY 59% of Americans have some form of Life Insurance.  That’s a sad statistic considering everyone could benefit from some form of Life Insurance, even if it’s Term Insurance.  “Term Insurance” is the kind of insurance that only last for a certain ‘term’ or period of time.  10-year term and 20-year term are some of the common terms that I see.

In some cases, a couple going through a divorce might already have a term policy that they purchased when the kids were born. 

Usually consisting of just enough insurance to get them through college if something were to happen to one of the parents, most likely the high-income earner.  Because term policies don’t have any cash value, I’ve seen them completely ignored during the divorce settlement and if they are addressed, the decree might say that the insured is ‘required’ to keep their spouse as the beneficiary.  However, a piece of paper that requires someone do something doesn’t actually keep them from doing it.  The high-income spouse might remarry down the road and five years from now find themselves in an insurance review with their new spouse where they find out the old spouse is still listed as the beneficiary.  Forgetting why that was the case, or that they are ‘required’ to leave it that way, they change the beneficiary, and nobody finds about it until policy holder passes away.

In a collaborative divorce, the spouses can request that the insurance company change the ownership of the policy to the beneficiary, thereby making the beneficiary the one in charge of who the beneficiary will actually be.  Something they will most likely never change.  The trick is that this request must be made while the parties are still married.

How the CDFA Process Works

Attorneys are trained in the law. A Certified Divorce Financial Analyst® — a divorce financial analyst trained specifically in the money side of divorce — focuses on the financial mechanics, including how taxes change what a settlement is really worth.

Initial consultation ($100)

A one-hour conversation to understand your situation — income, assets, the length of your marriage, and what support is on the table.

After-Tax Modeling

We translate gross support figures into what each household actually keeps, so you're negotiating with real numbers instead of pre-2019 assumptions.

Support vs. Property Comparison

Keith works directly with your attorney — or as a neutral party in collaborative divorces — to support fair, informed negotiation.

Long-Term Projection

We model what your settlement looks like 5, 10, and 20 years out — not just at the moment the ink dries.

Austin Divorce Planners works with clients throughout Austin, Cedar Park, Round Rock, Georgetown, Leander, Pflugerville, San Marcos, and across the rest of Texas through virtual consultations — so you can get divorce financial planning help wherever you are in the state.

 

About Keith PowellKeith Powell is a Certified Divorce Financial Analyst® (CDFA®) and Certified Financial Planner® (CFP®) with over 30 years of experience. Austin Divorce Planners is one of only a handful of Texas firms focused exclusively on divorce financial planning, with a strong focus on serving women throughout Texas. Serving all of Texas, including Austin, Dallas–Fort Worth, Houston, San Antonio, Waco, and beyond.

Frequently Asked Questions: Alimony & Taxes in Texas

The questions Keith hears most often from clients navigating support in a 2026 divorce.

Is alimony tax deductible in Texas in 2026?

No. For any divorce or separation agreement executed after December 31, 2018, alimony and court-ordered spousal maintenance are not deductible for the paying spouse and are not taxable income for the receiving spouse. This applies to all Texas divorces finalized in 2026.

Didn't the 2017 tax law expire after 2025?

Several of the TCJA’s individual provisions were scheduled to sunset after 2025, which is why many people expected alimony rules to revert. The alimony provision, however, was written as a permanent change and was never part of that sunset. For 2026 and beyond, the post-2018 treatment stands.

My divorce was finalized before 2019. Which rules apply to me?

Agreements executed on or before December 31, 2018 are grandfathered under the old rules — alimony remains deductible to the payer and taxable to the recipient. Be careful, though: modifying that older order can switch it to the new treatment if the modification expressly says the new rules apply.

How much spousal maintenance can a Texas court order?

Court-ordered maintenance is capped at the lesser of $5,000 per month or 20% of the paying spouse’s average monthly gross income, under Texas Family Code § 8.055. Courts do not automatically award the maximum — the amount is tied to the recipient’s minimum reasonable needs, and eligibility itself is limited.

What's the difference between spousal maintenance and contractual alimony?

Court-ordered spousal maintenance is limited by statute — strict eligibility, a dollar cap, and duration limits. Contractual alimony is a voluntary agreement written into the decree, with no caps or eligibility rules, often used to balance the property division. Both receive the same federal tax treatment for post-2018 agreements.

Should the tax change affect how I negotiate?

Yes. Because the payer no longer gets a deduction and the recipient no longer pays tax, the after-tax value of every support dollar has shifted. Numbers based on pre-2019 assumptions are no longer accurate — which is why modeling support and property on an after-tax basis before you agree to anything is so important.

Do I need a divorce financial planner if I already have a divorce attorney?

Attorneys provide legal advice and draft agreements. A divorce financial planner or CDFA helps analyze the long-term financial impact of settlement options, including taxes, retirement accounts, spousal maintenance, and future cash flow.

Related Reading for Your Texas Divorce

Support is only one piece of the settlement. Explore the related financial issues that often move alongside it.

Spousal Support in Texas

How spousal maintenance works, who qualifies, and how Texas courts approach it.

Asset Division in Texas

Community property rules and strategies for a fair, after-tax division of assets.

Pension Calculations

Why a pension’s true value rarely matches the statement — and how it’s divided.

Post-Divorce Budget Planning

What your finances look like going forward, on one income.

This article is for educational purposes only and is not legal or tax advice. Tax treatment depends on your specific facts and can change. Texas Family Code provisions are summarized here for general understanding. Please consult a qualified attorney and a tax advisor about your individual situation before making any decisions.
Austin Divorce Planners | Serving All of Texas
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