For people that signed a prenuptial agreement before getting married believing that there may be a chance that they and their spouse may divorce in the future, the Tax Cuts and Jobs Act that was signed into law on December 22, 2017 can potentially seriously affect the agreement that was reached. A major change occurred with the passage of the law stating that spousal maintenance or alimony is no longer be tax deductible after 2018 to the spouse who is paying it and will no longer need to be claimed as income by the person receiving it.
A separation agreement or a judgment of divorce must be signed within the calendar year of 2018 directing that spousal maintenance will be considered tax deductible in future years according to the new law. Prenuptial agreements can address spousal maintenance in a few different ways, some of which are:
Spousal Maintenance is Waived by Both Parties
In some prenuptial agreements both parties may consent to waive spousal maintenance altogether. If this describes your prenup, then the new law will not have an impact on you.
Spousal Maintenance is Waived Unless a specific Event Occurs
Some prenuptial agreements state that the lower earning spouse will be entitled to maintenance if there are children or if some other event happens during the course of your marriage such as a certain discrepancy in income between both spouses this new law may have an impact on you.
When Spousal Maintenance will be Awarded in a Divorce
A specific prenuptial agreement often states that spousal maintenance will be paid and also states how the amount or duration of maintenance will be determined. In such a scenario this law will definitely have an impact on you.
When a couple signs their prenuptial agreement, they are advised that spousal maintenance is tax deductible and they agree to terms based on that understanding. If they get divorced now after 2018, this tax break will not be available to them. If the taxability of spousal maintenance is important to you and influenced your agreement to pay, then you may want to consider asking your spouse to sign a postnuptial agreement renegotiating the terms of spousal maintenance. Postnuptial agreements have the ability to address these recent changes in tax law allowing both spouses to equalize the difference between what they expected to pay, and what they will be paying if they separate or divorce after 2018.
Such a major change in tax law will inevitably result in an inequitable outcome for couples who thought they were entering into an equitable agreement. Couples with prenuptial agreements should review their prenup to see how the new law may affect them. If you have any questions, you should consult with an experienced family law attorney and figure out how to have a conversation with your spouse about renegotiating the terms of your prenuptial agreement.
A court likely does not have the ability to change your prenuptial agreement it’s up to both spouses involved to talk about this issue when they are still happily married or only possibly considering divorce. If you want to discuss your prenuptial agreement and whether the new tax law affects you, contact one of our experienced Family Law Attorneys and discuss spousal maintenance.