Judith Poller, Co-Chair of Pryor Cashman's Family Law Group, spoke with the New York Times about how the newly-enacted Tax Cuts and Jobs Act will impact wealthy Americans contemplating divorce.
One key change in the law affects alimony, which will no longer be tax deductible for couples whose divorce agreements are completed or updated after 2018. Additionally, under the new system, one spouse will lose a tax benefit while the other gains one: the alimony payer will be taxed on the full amount while the recipient will pay no tax on it.
"When you're trying to resolve cases, that ability to get a tax benefit has been very useful," Poller said.
For couples who drew up prenuptial agreements, the outcome of divorce will be even more uncertain. Prenuptial documents often contain language calculating alimony payments based on years of marriage, as well as clauses stating that alimony payments are deductible for one spouse. It is unclear whether such clauses will hold up in 2019 and beyond.
In the absence of guidance from the I.R.S., Poller explained that a document providing for deductible alimony might not be honored if alimony was no longer deductible. A married couple may wish to consider renegotiating the agreement before the end of 2018, even if it might unsettle the marriage.
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