A proposal for lifelong marriage can be exciting for a couple as they look forward to sharing their lives together. However, some individuals of great wealth will consider a prenuptial agreement prior to saying “I do.” A prenup can help set the financial expectations in a marital relationship and can also protect one’s assets in the event of a divorce. Maryland couples who have current prenuptial agreements will need to review them in order to continue protecting their finances as the newly enacted federal tax laws will make changes to alimony in 2019.
Come Jan. 2019, couples seeking a divorce will find that the tax consequences regarding alimony payments have changed. The payee will no longer be able to deduct payments to an ex-spouse, and the receiver will no longer be required to pay taxes on the alimony received. After 75 years of allowing tax deductions on alimony payments, this change will likely affect current prenuptial agreements.
The majority of prenup agreements are based on the understanding that alimony is tax deductible. A lot of the agreements stipulate that alimony is to be paid at a percentage of the difference between the couple’s incomes. When the tax change is implemented, the payer may face owing more out of pocket for alimony.
Individuals may want to consider reviewing their existing prenuptial agreements and how the tax change will affect them if a divorce occurs. It would be wise to consult a Maryland divorce lawyer to determine if an existing agreement needs to be modified or whether a postnuptial agreement should be considered to ensure financial protection. An attorney’s counsel can help bring clarity to an individual with questions about the upcoming tax change and how it will affect an existing prenup agreement.
Source: financial-planning.com, “Prenuptial agreements affected by Tax Cuts and Jobs Act“, David Friedman, May 3, 2018