By New Jersey Alimony Attorney Galit Moskowitz of Moskowitz Law Group, LLC.
A recent tax law passed by Congress may have people wanting to check their prenuptial agreements. The new law deals with alimony and taxes, and it may end up hurting those the agreement was originally meant to protect.
In the past, the spouse paying the alimony was able to deduct it from their annual income taxes. In addition, the spouse receiving the alimony was to report any alimony payments as taxable income. At the time, this was considered to be fairest to both parties, as it allowed for more income to be available to be split between the divorced parties.
But the new tax law does not allow the payer of the alimony to deduct those payments any more. That could be an issue for many, as historically, prenuptial agreements have always been drafted with the understanding that alimony payments could be deducted from the payer’s income taxes. Because it no longer will be, it could find the payer in a difficult financial position.
The only alimony orders that will be affected by the new law are those that went into effect on December 31, 2018 or after. Still, any person that is part of an alimony agreement, whether they are the payer or the receiver, should look at the agreement to determine if it needs to be changed.
“Changes can be made to prenuptial agreements if both parties agree to it,” says Galit Moskowitz of Moskowitz Law Group, LLC. “Postnuptial agreements, or those that are entered into after marriage, may also be an option for those that are no longer satisfied with their prenuptial agreement due to the new tax law.”
In either case, those that have a prenuptial agreement must carefully read it and ensure that they know whether they will be protected. If there is no action made by December 31, 2018, both parties will be bound to the agreement and that could make it financially difficult for the spouse paying alimony.
Financial advisors can help make sense of the prenuptial agreement and how parties will be affected after this new law. If the agreement needs to be changed, a family lawyer can help parties come to an agreement that is more beneficial to both of them.
