Congress recently passed a new tax law with far-reaching ramifications. One of the more controversial aspects of the bill involves tax deductions and alimony payments. Beginning next year, spouses paying alimony will no longer be permitted to deduct payments. The spouse receiving alimony will no longer pay taxes on these payments. This shift may effectively reduce the overall amount of money available to both spouses.
Most prenuptial agreements drafted before the new tax law were created on the assumption that alimony payments would always be tax deductible. Many included provisions regarding alimony stating the payer spouse would pay the recipient 30 percent of the difference in their respective incomes or a certain dollar amount every month.
In most cases, the spouse paying alimony requested the prenuptial agreement as a means of financial protection. With the new tax law and the loss of deductibility for alimony payments, that paying spouse may now be at a significant financial disadvantage. Divorce or separation agreements created on or before December 31, 2018 will not be affected by the new tax law.
Other Reasons to Update Your Prenup
There are many other scenarios that may warrant a modification of your existing prenuptial agreement. Most prenuptial agreements are created for couples in which one spouse makes significantly more than the other. However, the financial dynamic within this relationship is subject to change over time.
Men and women lose jobs, further their education, and change careers – all of these transitions potentially impacting their income and earning potential. In some cases, one ex-spouse receives a lump sum of money from an investment or inheritance. When the financial balance between partners shifts significantly, the terms of an existing prenuptial agreement may no longer be relevant.
If your financial situation changes or the terms of your settlement will be impacted by the new tax bill, consult a divorce lawyer for advice. He or she will review your prenuptial agreement and determine if it makes sense to modify it. The most commonly modified terms of divorce include alimony, child custody, parenting time, and relocation.
Your prenuptial agreement is an important means of financial protection after a divorce. It is smart to revisit your agreement on a routine basis to ensure it still meets your needs and makes financial sense. The South Jersey divorce lawyers at the Burnham Law Group, LLC work with clients to create fair and practical agreements that protect their interests.