May 20, 2018

May Misconception-New Tax Law Doesn’t Affect My Prenup

May Misconception-New Tax Law Doesn’t Affect My Prenup

Actually, it might?

The income tax impact on one of both soon to be spouses is often an important consideration when a prenuptial agreement is structured.  Frequently for example, prospective spouses  consider the tax affect of alimony in prenup negotiations. Historically, under most circumstances alimony has been tax deductible by the person paying it and included in the taxable income of the person receiving it.  Under the new tax law though, starting with divorces occurring in 2019, alimony is no longer deductible by the payer or taxable to the payee.

But tax planning around alimony is only one area in which income tax impact may be taken into account when couples craft their prenuptial agreement.   Others, not necessarily specific to divorcing taxpayers,  might include how the couple allocate: dependency exemptions along with the child tax credit; assets with differing tax treatment; rights and responsibilities for items that generate deductions for purposes of itemizing.  The new tax law makes changes to all these areas which may result in unintended financial consequences for divorced and divorcing couples.

Most couples invested significant time, effort and emotion into creating their prenuptial agreement so that it provides clear direction and limits conflict if their marriage fails.  Whether you are already divorced or still married, it may make sense then to check in with your lawyer or tax adviser now to make sure the new tax law doesn’t undermine the objectives you so carefully worked to achieve.


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