YUMA, Arizona. For many high-net worth couples, and for couples where one spouse earns significantly more than the other, the alimony agreement in a prenuptial agreement can offer both parties peace of mind. The paying spouse knows what he or she would pay should the marriage not work out and the spouse receiving alimony can properly budget should a divorce take place. However, starting this year, a new tax law could throw all of this into a tailspin.
Under the Trump administration’s new tax law, the way alimony is taxed has been restructured. Formerly, the spouse paying alimony could deduct the amount, effectively lowering his or her tax burden, while the spouse receiving alimony paid tax on the amount he or she received. Both parties ultimately received a lower tax bill, meaning there was more money between them to divide. However, if you plan to get divorced starting in 2019, the paying spouse will no longer be permitted to deduct alimony for tax purposes (meaning the paying spouse must pay the tax on the amount) and the receiving spouse will get alimony tax-free. While this might sound like a great deal for the spouse receiving alimony, the reality is that the paying spouse, in some high-net worth divorces, could see his or her effective contribution doubled.
In the new year, courts will begin to hear divorce cases where alimony must be considered in light of the new tax law. While no precedent has been set about how judges will handle prenuptial agreements drafted before the tax law goes into effect, the changes could potentially mean that prenuptial agreements could be challenged in court. According to Bloomberg, spouses paying alimony might be able to ask judges to reconsider the prenuptial agreement in light of the new tax law. This means that both parties may have to renegotiate alimony during a divorce.
So, what can you do to protect yourself? If you are a high net-worth couple, while it might not sound appealing to take another look at your prenuptial agreement if you are happily married, it might be wise to review your agreement later this year. However, you may not need to rush to make changes right away. Why?
Schneider & Onofry, P.C. are divorce lawyers in Yuma, Arizona
who will take a close look at how older alimony agreements are considered in divorces in the coming year. Essentially, the first divorces of 2019 will likely set some precedents about how older alimony agreements will be treated by the courts. Will judges allow couples to challenge their agreements? Will judges use formulas and adjust agreements themselves? There are many ways judges can consider old alimony agreements in light of the new tax law.
If divorce isn’t in your future any time soon, it might be best to wait and see how courts treat older alimony agreements, so that you and your divorce attorney can amend your agreement accordingly. It is possible that in some cases, no changes may be necessarily.
One thing is for sure—if you are in the process of drafting a new prenuptial agreement, you should be sure that your divorce lawyer considers how the tax law will affect alimony. It might not be sufficient to just consider the implications of the tax law for your prenuptial agreement to stand in court. Patch notes that couples drafting alimony agreements in the new year should consider explicitly writing into their agreements that alimony amounts have been set with the new tax law in mind.
Schneider & Onofry, P.C. are family lawyers in Yuma, Arizona
who are closely watching how Trump’s new tax law will impact divorce. If you have questions about your prenuptial agreement, consider speaking to us today. We can provide answers.
Schneider & Onofry, P.C.
207 W. 2nd St.
Yuma, AZ 85364
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