The Tax Cuts and Jobs Act has eliminated the tax treatment of alimony that has been in place for more than 75 years. Under the old law, alimony is deductible from the income of the payor and includible in the income of the recipient, provided the parties comply with the specific requirements of the Internal Revenue Code (I.R.C.). Effective January 1, 2019, under the Tax Cuts and Jobs Act, parties will no longer have the option to enter into an agreement for taxable alimony nor will court-ordered alimony be deductible from the payor’s income and includible in the recipient’s income. Some alimony obligations created prior to January 1, 2019, may receive alimony tax treatment under the old law; others may not.
An existing premarital agreement may provide for a predetermined amount of alimony, in the event of divorce, and for it to be deductible to the payor and includible in the income of the recipient (deductible-includible alimony). What effect does the new law have on such an agreement? The new law has upended the tax planning of these agreements for anyone who separates on or after January 1, 2019, or who separates before that and does not obtain a separation agreement or a court order prior to that date.
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