Pasternak & Fidis Reporter

April 9, 2018

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

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.


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April 2, 2018

Impact of the 2017 Tax Cuts and Jobs Act on Divorcing Families

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In December 2017, Congress rushed to pass the Tax Cuts and Jobs Act:  a 503-page document that drastically alters several of the popular tax credits and deductions around which many divorcing families structure their financial planning.  This first major tax reform in decades affects taxes beginning in 2018 and will have a significant impact on divorcing families.  Family lawyers are still working on understanding the nuances of the changes and figuring out how to settle cases while some of the uncertainties in the application of the new law are being resolved by the Treasury Department.

Even the most amicable divorce can be expensive; it simply costs more to maintain two households.  Through effective use of the tax code, however, family law attorneys, often working alongside… MORE >

March 9, 2018

Tax Cuts and Jobs Act: Impact on Estate and Gift Planning

The Tax Cuts and Jobs Act (the “Act”), signed into law at the end of December, includes major changes to the Internal Revenue Code.  The Act is the most sweeping tax legislation to be enacted in decades and affects nearly all American taxpayers.  Under the Act, the federal estate, generation-skipping transfer (GST) and gift tax exemption amounts have increased dramatically.

The estate tax exemption amount is the amount that an individual can pass at death to anyone without incurring estate tax, and the GST tax exemption amount is the amount that an individual can pass to grandchildren and more remote descendants without incurring GST tax.  In addition to the estate tax exemption, there is the unlimited marital deduction, which permits an individual to transfer an… MORE >

January 30, 2018

State Estate and Inheritance Taxes after the Tax Cuts and Jobs Act

The doubling of the federal estate tax exemption under the Tax Cuts and Jobs Act has moved many wealthy Americans away from the impact of the federal estate tax.  However, state estate taxes and inheritance taxes remain a factor in estate planning for residents of a number of states, including Maryland and the District of Columbia.  Moreover, a state level estate or inheritance tax may be imposed on real estate located in a state with a tax even when the decedent resides elsewhere.

Currently, only a handful of jurisdictions have an estate tax.  These include the District of Columbia and Maryland as well as Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington.  The District of Columbia’s estate tax exemption… MORE >

January 29, 2018

The District of Columbia Death with Dignity Act

The District of Columbia Death with Dignity Act allows an adult D.C. resident who is terminally ill (i.e., medically confirmed to have less than six months to live) to request medication to voluntarily end his or her life.

In order for a patient to participate in the Death with Dignity program, the following requirements must be met:

  • The patient must be capable of communicating health care decisions to health care providers on his or her own; an agent may not make the request on behalf of a patient.
  • The patient must make two oral requests (separated by at least 15 days) and one written request to an attending physician.
  • The written request requires two witnesses, one of whom cannot be a relative, someone entitled… MORE >

October 18, 2017

Changes to Maryland Law Increase Ease, Efficiency, and Consistency in Family Law

The Maryland General Assembly recently took several actions impacting domestic relations that will increase ease, efficiency, and consistency for those navigating the family court system.

Domestic Violence Orders Admissible in Maryland Divorce Suits

Protective orders (a form of domestic violence order) are designed to end and prevent abuse between family or household members.  Current or former spouses, people who have lived together in an intimate relationship for at least 90 days during the past year, people who have been in a sexual relationship within the past year, people who share children together, people who are in a caretaker-vulnerable adult relationship, and family members can file for a protective order 24 hours a day in Maryland.  In a protective order, a judge can order the abuser… MORE >