“INSIGHT: Effects of The Tax Cuts and Jobs Act of 2017 on Prenuptial Agreements,” Bloomberg Tax
In an article published in Bloomberg Tax on October 30, Bob Boyd and Beth Garrett of Frazier & Deeter, discuss how prenuptial agreements have been affected by The Tax Cuts and Jobs Act of 2017.
Before the tax law, it was widely expected that only the rich and famous had prenuptial agreements to protect their fortunes but nowadays there are a number of reasons that people have been getting these agreements such as, couples who are getting married later in life or couples who are getting married for a second time and are still financially recovering from their prior divorce.
One of the biggest changes The Tax Cuts and Jobs Act of 2017 had on prenuptial agreements was on alimony payments if a couple decides to get a divorce. Instead of payments being determined by the payor’s income at the present time, expected income growth and tax deduction for paying alimony, these payments will no longer be eliminated from taxes. Meaning that the payor now has to pay more money than anticipated.
However, these changes do not necessarily mean you need rush to amend your prenuptial agreements. There are numerous factors to consider including if you and your spouse are not considering a divorce. In this case, amending your prenuptial agreement might raise more issues for your marriage.
“One important note is that individuals who were divorced prior to Dec. 31, 2018, are still operating under the prior tax law. This means that alimony being paid is eligible for a deduction and should be included in the income of the recipient. The alimony payments must have been required under a written divorce or separation agreement. Thus far there have been no challenges in this area; however, it would appear that a prenuptial agreement providing for the payment of alimony in the event of a future divorce would not satisfy the written agreement provision,” the authors state.
The best advice is to simply consult your tax advisor to determine how the new tax law will impact your alimony payments.
For the full article, click here.