Q: What effect will the new tax laws have on my prenuptial agreement if it was written before the enactment of the new law?
Of course, the new tax laws are kind of the top of the list of discussion, but we really won’t know until a little bit of time goes by, how the family tax laws will affect things. Prenuptial agreements and the prep agreements were agreements made obviously years ago, that considered the tax consequences of alimony because there have always been tax consequences. The other side is when you’re dealing with alimony, and with prenuptial agreements, you have a contingency where even if it seemed like it was fair at the time, it’s always going to be reassessed under current circumstances to see whether it’s still standing or whether it is not. Courts are going to be able to review the alimony under the current circumstances of no tax consequences rather than on what the law was back then.
Q: Because of the new tax law, is it fair to say that if you are representing the wealthier of two spouses, and one will end up paying alimony, that your goal would be to wrap it up before December 31, 2018?
That’s right, but by the same token someone, the other side might try to stretch it out. We will often try to negotiate a lump sum to buy out alimony, so they wouldn’t have the monthly payments anymore. We would look at how long they are likely to pay alimony and for how much, and then discount for tax consequences, and take into account the amount of time.
Q: How often do you find yourself in a situation where the other spouse will accept a lump sum in alimony decisions?
It doesn’t happen often. Once in a while, you can convince someone they’re better off taking a lump sum amount of money now rather than spreading it out over years. It sounds like the lottery when you think about it because alimony ends if the person paying the money dies. Sometimes they are a heartbeat away from getting nothing so they would rather have a lump sum.
Whether it is judge-imposed or otherwise, under the right circumstances, people want to take a buyout. Other examples besides death could be the possibility of the person becoming disabled or unable to work.
Q: Do you ever advise the person who will be receiving the alimony to consider the lump sum?
Definitely and taking a lump sum is sometimes proposed. Divorce law is really financial planning, and people have to consider if they are getting alimony how they will financially take care of things going forward. When developing a plan as part of a divorce, it may be actually more secure to take a lump sum of money.
It depends on what else is going on, what else is in the estate, and where you’re going to be moving. Sometimes you would rather have all the money upfront or even a smaller amount but a lump sum upfront, and then you can invest it. In some instances, there is much more closure because you’re not dealing with it every month.