We recently posted an article on the implications of the Tax Cuts and Jobs Act on alimony—and how this change in the law may affect divorcing couples. Starting in 2019, the considerable tax break that alimony payers previously enjoyed will be repealed. Alimony will no longer be tax deductible, which will likely leave alimony recipients with less money each month.
While much attention has been focused on the effects this change will have on couples going through a divorce after 2018, it’s also worthwhile to consider what this new tax law will mean for couples with existing prenuptial agreements.
Do the old terms still apply?
You and your spouse are nothing if not practical. When you decided to tie the knot, you approached it like a business agreement. You planned out every eventuality and diligently mapped it all out in your prenup. You might assume the terms of your existing agreement would be grandfathered in under the old law. However, unless you filed your agreement with a court for approval at the time you signed it, the new law could change the terms you agreed to.
For instance, your prenuptial agreement may stipulate the amount the alimony payer would be responsible for paying each month—in the event of a divorce. Under the current tax deduction, the alimony payer may only have had to pay 60 cents of each dollar owed. However, come 2019, they would be responsible for 100 percent of the amount specified.
What’s the solution?
Your relationship with your spouse may be on solid ground, and you may not foresee your marriage ever coming to an end. Nonetheless, perhaps the new financial implications of a hypothetical divorce have you worried. It might be a good time to have an open conversation with your spouse and your lawyer. You may choose to modify your agreement or submit your existing agreement for court approval before 2019. This way, you don’t have to worry about subsequent changes in the law foiling the contract you originally agreed on.