Protect Your Prenuptial Agreement From New IRS Alimony Tax Rules

Many couples busy planning their weddings this summer are also busy behind the scenes drafting the terms of their prenuptial agreement.

A “prenup” is a legally binding document that lays out certain parameters and terms regarding a couple’s assets and finances should their marriage end in divorce.

Premarital agreements are a good idea in today’s financially complex world.

But before spouses-to-be say “I do” to the terms of their prenup, they need to be aware of a new IRS tax law and its impact on a common provision in many agreements.

Are you planning to include an alimony in your prenup?

Then you need to be aware that under new tax rules, spouses who pay alimony are required to claim this amount as taxable income on their federal returns. This applies to any alimony agreement created after January 1, 201 9.

Prior to 2019, a “perk” for paying alimony was the ability to deduct support payment amounts from taxable income. As a result, paying spouses would often agree to pay a little more in monthly support because the tax cut often provided the financial benefit of pushing them into a lower tax bracket.

Future-proofing your prenuptial agreement

This upending of how alimony is treated by Uncle Sam has dramatically
changed alimony negotiations.

Alimony ranks as one of the most common items spouses include in their prenup, including how much alimony is paid and for how long.

Prenuptial agreements can be thrown out at the time of a divorce if judges deem them unfair, incorrectly created, or signed under duress. The alimony tax change offers yet another opportunity for challenges if paying spouses claim they did not understand future tax implications at the time the prenuptial agreement was agreed upon and signed.

This could put your prenuptial agreement in jeopardy, so as you go about creating this document — a document that exists to give you peace of mind — take care that both of you are educated about the new tax rules around alimony. Run your future taxes taking alimony into account before reaching final terms.

And, talk to your attorney. It may make sense to include language in your prenup that directly addresses your taxes, with each of you signing off on your understanding of the tax implications of your agreement.

By taking a step such as this, you close one more loophole for any future objection.

And this means you are one step closer to safeguarding your future.

Bari Zell Weinberger, Esq. is an award-winning family law expert and founder of Weinberger Divorce & Family Law Group, New Jersey’s largest divorce and family law firm, with locations in Bergen, Burlington, Monmouth, Morris, Somerset and Union counties. Bari has carefully selected a high-performing team of family law attorneys, completely dedicated to safeguarding and protecting their clients’ futures. Ms. Weinberger is a certified matrimonial attorney and experienced family law mediator. She is also a published author and frequent media contributor on divorce and family law for both local and national audiences.