Federal tax law has a longstanding history of providing tax deductions for alimony, or spousal maintenance – a trend that was recently broken by the Trump administration. For court decrees and alimony agreements entered into after December 31, 2018, alimony payments are no longer deductible. Divorce agreements entered into on or before December 31, 2018 remain unaffected. However, the new tax legislation does not specifically refer to prenuptial agreements, so how the law affects such agreements remains unclear; there has been some growing concern that the new tax code will confound existing prenuptial agreements.
Current married couples that have signed prenuptial agreements did so in light of the tax code as it existed before 2019. As a result, the parties often set the amount of spousal support to reflect the ability to deduct those payments later. Now, under the new tax code, potential divorcees are concerned that they will be paying more in post-tax costs than they had agreed to in their prenuptial agreements. If this were the case, one mitigating option available to married couples would be to amend the alimony provisions of their prenuptial agreements; however, the fear of returning to amend prenuptial agreements is that it may cause marital problems where there were none before.
If prenuptial agreements signed on or before December 31, 2018 are grandfathered into the pre-Trump tax treatment, there is no issue. Alimony payments made under such an agreement in 2019 and after will be deductible to the payor and includible in the income of the recipient, just as the law was prior to 2019. However, as mentioned above, in that case, the best course of action may be to amend existing agreements made prior to January 1, 2019 to recite that both parties are aware of the changes to taxation of alimony and agree that maintenance payments will be deductible by the payor and includible in the income of the payee.