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Prenups and alimony payments on the rocks after tax changes

On Behalf of | Jun 5, 2018 | Uncategorized

Recent tax changes may mean people who enter into prenuptial or alimony agreements as part of marriage or divorce could find themselves digging deeper into their pockets. Knowing the details of your prenup or alimony and how to amend it could save you time and money in the long run.

President Trump’s recent tax changes will see the payers of this alimony no longer able to deduct the payments from their tax bill. For many celebrities, sportspeople and business leaders in the top tax bracket – those most likely to have an alimony arrangement — this results in an effective doubling of post-tax costs.

Ending the “divorce subsidy”

Lawmakers argue that this new plan eliminates the alimony tax deduction to bring a close to what they called a “divorce subsidy.” The change, which could raise up to $8 billion during the next 10 years, does not affect divorces and separation agreements finalized before the end of 2018. Instead, the changes will affect all future prenups and alimony agreements written after Dec. 31, 2018.

Prenups increase in popularity

Tax changes aside, prenups have been on the rise in recent years, according to a survey conducted by the American Academy of Matrimonial Lawyers. The document is more popular these days as younger Americans delay marriage, and older divorcees often use prenups if remarrying.

Knowing the details

All prenups and alimony arrangements are unique in their scope and directives:

  • Some alimony agreements are based on monthly payments
  • Others will stipulate a percentage of income
  • If there is child support, that’s usually part of the calculation too

One thing they all have in common is they are sometimes difficult to put in place, and a change in the law could create additional complexities as you try to retrofit the agreement into place with your current lifestyle.

The solution

One option is to amend an agreement. Otherwise, amid the ambiguity, you could find yourself in an unfavorable tax situation that tangles the equitable division of your assets in divorce.

Unfortunately, discussing divorce can bring out high tension in some couples. Any discussion of prenuptials and alimony arrangements must be dealt with delicately and reasonably with emotional sensitivity. Using an attorney can help, especially one that is fully informed on the tax changes and skilled in mediation.