How the new tax law impacts prenuptial agreements

California residents and others who wish to use the current rules regarding alimony payments need to finalize their divorces by the end of 2018. Starting on the first day of 2019, alimony payments are no longer tax deductible. Those who receive them will no longer consider the payments as income. The change in the tax code could present unique challenges to those who have prenuptial or postnuptial agreements.

There is no clear answer to the question of whether such an agreement would be grandfathered in under the old law. If it isn't, those who are paying alimony may want to review their current agreements and make any changes now as opposed to taking a chance later in court. This is because they may want to consider paying less alimony as their payments are not offset by a reduced tax bill. Ideally, a couple will review an agreement while the relationship is in good standing as it can be easier to negotiate new terms.

Furthermore, a couple should approach renegotiating a prenuptial agreement with the goal of preserving their current relationship. This may be done by working with a mediator as opposed to attempting to make changes on their own. A mediator is someone who will help two people focus on overcoming their differences as opposed to getting bogged down in conflict.

Working with a mediator may make it easier to come to an agreement as it relates to alimony payments or similar issues. It may also make it possible for a couple to preserve its relationship by involving a neutral party. If an agreement is reached, it is worth having the document reviewed by an attorney prior to signing it. In some cases, it takes multiple meetings with a mediator to resolve all outstanding issues.

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