There has been much discussion this year about how the latest changes of the Tax Cuts and Jobs Act affect the taxing of alimony payments in divorce. However, those laws are also potentiallty impacting those who still are married and have a prenup. For wealthy couples, the tax law change would likely mean those prenups no longer accurately represent the spirit of the original agreement.
To update or not update?
Some couples are hesitant to make any changes to a prenup agreement. This may be because the marriage is on solid footing and there is no reason to change anything. However, if the agreement outlined in the contract is not amended, it could leave the matter up to a judge to decide, which may not be desirable for some.
Potential to hurt alimony recipients
While alimony was previously a write-off for the payor spouse, the new system taxes alimony, which likely means a cut in the amount of alimony paid to a spouse. The prenuptial agreement likely mentions the payments are intended to be paid as tax deductible, which could give the judge cause to lower the payments in the event of divorce. The good news is that the tax burden is now on the recipient, but those receiving alimony are typically in a lower tax bracket than the payors.
More chance for acrimony?
According to financial experts, there is also concern that this shift will cause a certain level of anxiety among couples with a prenup because their intended settlement is no longer a given with the recent tax changes. The tax-free element of alimony eased the sting of signing a prenup and honoring it. Now with that removed, there could be heightening of tensions as the financial details are determined.