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TaxesPreviously we wrote about the new tax law (known as the 2017 Tax Cuts and Jobs Act) and how it will impact alimony and child support, but as promised we are still following the law and its potential impact on family law cases.  One of the latest concerns is how the law will affect pre-nuptial agreements.  Often one of the primary goals of a couple entering into a pre-nuptial agreement is to determine the terms of alimony both in duration and amount in the event of a divorce – this is agreed to prior to getting married through the pre-nuptial agreement.  The pre-nuptial agreement is a contract with certain terms and understandings on the part of both parties.  In the case of alimony and pre-nuptial agreements that were entered into prior to 2018 the most likely understanding was that the alimony would be deductible income by the party paying it and reportable income by the party receiving it.  However, under the new tax law if the parties are divorced after January 1, 2019 alimony will be a non-taxable event.  Effectively the new tax law has changed the terms of the contract.

Where does this leave the parties?  Is the pre-nuptial agreement still enforceable if a major term of the contract has changed?  What can married couples do that have an existing pre-nuptial agreement?  What should potential couples do who are planning on entering into a pre-nuptial agreement?   The answer to these questions is the parties should discuss their concerns with qualified legal counsel.  There are numerous ways to proceed.  The parties could renegotiate the alimony portion of the pre-nuptial agreement to reflect the reality of the new tax law.  The concern of course is if one term of the pre-nuptial agreement is being renegotiated does that open-up the possibility of renegotiating other terms.  Is this something a happily married couple wants to do?  Another option would be to leave the pre-nuptial agreement as is.  It’s possible that the new tax law might be changed in the future.  Every pre-nuptial agreement, like all divorces, is fact sensitive.  If you have a pre-nuptial agreement we suggest that you review it with legal counsel so that you understand your agreement in terms of the new tax law; and that you understand the options open to you.

Next week we will address the new tax law and its possible impact on a business evaluation during a divorce.

If you have any questions regarding the new tax law and how it may impact your divorce we are available to discuss your concerns with you, please call our firm at 908-879-9499.

Hopefully, everyone by now has filed their 2017 taxes. Or at the very least filed for an extension.  Unfortunately for 2018 that’s not the end of the story.  The next step should be to review your 2018 withholdings.  Withholdings are something that should be reviewed periodically to ensure that you are not withholding too much or too little from your paycheck.  Neither is generally a good thing.  As family law attorneys we are keenly aware of the importance of withholdings to our clients’ bottom line.  When parties get divorced withholdings should always be reviewed and most often changed as your filing status is changing.

Now the Federal Government has given us a new reason to review withholdings – the Tax Cuts and Jobs Act which was passed in 2017. The new law changes among other items: tax rates, tax brackets, deductions and exemptions.  Whether you support or oppose the new law there is little doubt that it’s going to affect your taxes.

Of particular significance to divorced parents is the removal of personal exemptions from the tax code. Prior to the new tax law the issue of who could claim the children was often fiercely negotiated.  The parent who was permitted to claim a child in any given year also received an exemption for that child.  Typically, the right to claim a child on taxes was alternated between the parents from year to year.  Now there is no exemption to receive so who claims the child may matter less.  Or it may matter more because the child tax credit has been expanded.

The best way to review your withholdings and your tax returns would be to speak to your tax professional. However, we at Iandoli & Edens, LLC will keep monitoring how the revised tax code will affect our clients and keeping you updated.

If you have any questions regarding your separation, divorce or custody we are available to discuss your concerns with you, please call our firm at 908-879-9499.