Why now may be a good time to revisit a prenuptial agreement

This article looks at why prenuptial agreements could soon be open to challenges because of the new tax law.

The Tax Cuts and Jobs Act, the sweeping tax reform that was recently passed by Congress, may include an unwelcome surprise for those who have prenuptial agreement. As the Los Angeles Times reports, the new law scraps the longstanding alimony tax break, which could mean that many prenuptial agreements that were written with the tax break in mind may suddenly be open to legal challenges. The change means that couples who have a prenuptial agreement may need to consider altering those agreements to reflect the new tax reality.

Tax break ends December 31, 2018

The alimony tax break will only be available for divorces that are filed before the end of the year. All divorces filed on January 1, 2019 and afterwards will no longer be eligible for the break.

That tax break has, for more than seven decades, allowed alimony payers to deduct their alimony payments on their federal taxes. Recipients, meanwhile, have had to declare the alimony payments as income. With the tax break gone, alimony payers could find themselves paying as much as twice as much in alimony than they would have had the tax break been available to them. Recipients, meanwhile, will no longer have to pay taxes on alimony.

How prenuptial agreements are affected

As CNBC reports, many prenuptial agreements explicitly state that their alimony calculations are based on the assumption that such payments will be tax deductible. The elimination of that deduction represents a substantial change and some payers may find they are in effect paying double in alimony than would otherwise have been the case with the deduction. Because of the change, it would not be surprising if judges allowed such prenuptial agreements to be challenged for divorces that are filed after the December 31, 2018 deadline.

At the very least, the fact that payers could suddenly find themselves paying a lot more in alimony than they expected will likely lead to more acrimonious divorces.

That threat means that couples who have a prenuptial agreement that was written under the assumption that the alimony tax deduction would be available to them should consider revising those agreements. While revisiting a prenuptial agreement may not sound ideal, especially for those who have long been happily married, it could help avoid unnecessary conflict and unwanted surprises later on.

Talking to a family law attorney

As the above article shows, it may be time to talk to an attorney about how the new tax law could affect prenuptial agreements. An attorney can help clients who have questions about their prenuptial agreements and any other family law-related issue. By talking to an attorney today, clients will have the guidance and peace of mind they need to tackle the various complex challenges that family law matters often raise.