Category: Premarital Agreements

April 9, 2018

Premarital Agreements, Alimony, and the Tax Cuts and Jobs Act

Linda J. Ravdin

The Tax Cuts and Jobs Act has eliminated the tax treatment of alimony that has been in place for more than 75 years.  Under the old law, alimony is deductible from the income of the payor and includible in the income of the recipient, provided the parties comply with the specific requirements of the Internal Revenue Code (I.R.C.).  Effective January 1, 2019, under the Tax Cuts and Jobs Act, parties will no longer have the option to enter into an agreement for taxable alimony nor will court-ordered alimony be deductible from the payor’s income and includible in the recipient’s income.  Some alimony obligations created prior to January 1, 2019, may receive alimony tax treatment under the old law; others may not.

An existing premarital agreement may provide for a predetermined amount of alimony, in the event of divorce, and for it to be deductible to the payor and includible in the income of the recipient (deductible-includible alimony).  What effect does the new law have on such an agreement?  The new law has upended the tax planning of these agreements for anyone who separates on or after January 1, 2019, or who separates before that and does not obtain a separation agreement or a court order prior to that date.

To obtain deductible-includible alimony under the old law, the payments must be made in accordance with a divorce or separation instrument.  I.R.C. Section 71(b)(2) defines a divorce or separation instrument as: “(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree, (B) a written separation agreement, or (C) a decree . . . requiring a spouse to make payments for the support or maintenance of the other spouse.”  A separation agreement is an agreement made in connection with an existing or planned marital separation; a premarital agreement is not a separation agreement, according to regulations issued by the Treasury Department.

A premarital agreement providing for deductible-includible alimony typically states that the parties will obtain a divorce or separation instrument before the payor begins making payments in order to get the intended tax treatment.  The elimination of alimony treatment applies to divorce or separation instruments executed on or after January 1, 2019.  This means that parties with a premarital agreement providing for deductible-includible alimony who separate and obtain a divorce or separation instrument on or after January 1, 2019, will not get the tax treatment they bargained for.  Rather, alimony will neither be deductible from the income of the payor nor includible in the income of the recipient.

Parties with a premarital agreement who have already entered into a separation agreement, or who are already divorced, can receive the tax treatment of the old law.  Those who enter into a separation agreement and divorce in 2018 will be able to utilize the old law and have deductible-includible alimony.  There is some uncertainty about deductibility where parties sign a separation agreement in 2018 and divorce in 2019 or thereafter.

Parties with a premarital agreement providing for deductible-includible alimony and who have no plans to divorce may nevertheless want to consider amending their agreement to take account of this radical and unexpected change in the tax law.

June 20, 2017

Premarital Agreements and the Migratory Couple

Linda J. Ravdin

A premarital agreement is a contract between persons intending to marry.  It determines spousal rights when the marriage ends by death or dissolution.  All states enforce properly made premarital agreements.  However, laws governing validity vary among the states.  What if a couple signs a premarital agreement in Virginia and later moves to Maryland?  Will a […]

November 28, 2016

Washington’s Top Divorce Lawyers–again!

Pasternak & Fidis

Jan White and Linda Ravdin were named yet again on Washingtonian’s list of Washington’s Top Divorce Lawyers. Congratulations, Linda and Jan!

November 3, 2016

Protecting an Inheritance: Premarital Agreements and Trusts

Marcia C. Fidis

“My daughter is getting married. Does she need a premarital agreement?” Estate planning attorneys hear this question more and more frequently – generally from clients concerned about the assets they plan to leave their children. Numerous wealth transfer predictions estimate that trillions of dollars will pass over the next decade from a generation that earned […]

May 26, 2016

Getting Off to the Right Start: A Collaborative Premarital Agreement

Anne (Jan) W. White

Premarital agreements get a bad rap for being anti-romantic, anti-relationship and getting a marriage off to a bad start.  If they are done right, nothing could be further from the truth. The Collaborative Process has gained traction in the last decade as a respectful way for couples to settle their divorce issues outside of court. […]

May 25, 2016

Arbitration in Family Law Matters: Has Its Time Come?

Linda J. Ravdin

Alternative dispute resolution embraces a variety of processes designed to resolve legal disputes outside of a formal court proceeding.  One such option is binding arbitration.  In binding arbitration a neutral decision-maker, who could be a retired judge or a lawyer with expertise in the subject matter of the dispute, is appointed make a decision to […]