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2019 tax changes may force pre- postnuptial contract revisions

In a post early in July, we proposed that some Texas couples considering divorce who may be feeling pressure to get moving in the process. That's because of tax implications if they wait too long, specifically as regards spousal support payments.

In any divorce settlement reached after Jan. 1, 2019, in which one party pays spousal support to the other, the payer won't be able to deduct the amount on their taxes. At the same time, the support recipient won't have to count the payments as taxable income. But the tax implications extend beyond those considering divorce now. They could also apply to couples who aren't contemplating divorce, but entered into a pre- or postnuptial agreement in anticipation of the possibility.

Texas being a community property state means any property or assets acquired during a marriage are subject to division in the event of a divorce. Individuals entering marriage with meaningful personal assets often want to keep them if divorce occurs. Pre- or postnuptial agreements are tools for that purpose. But they can also include broader provisions that include spousal support payments and that creates a potential hurdle.

Agreements in existence that include spousal payments most likely assume application of the existing tax law which allows a payer to take a deduction and obliged the receiver to count the money as income. Because the recipient is often in a lower tax bracket, the arrangement favors the payer.

The new structure eliminates that benefit for anyone divorcing after the end of this year, but it also applies to any agreements amended after that. So, experts are warning agreement holders to review the documents and consider if any changes are necessary.

Attorneys with experience in this aspect of family law know that pre- or postnuptial agreements can be difficult to negotiate in the first place. Revisiting the issue could cause new anxiety and expose new tensions for couples. To make the process go as smoothly as possible, plan to work with an attorney committed to understanding your needs and protecting your interests.

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Attorney Christine K. Lincoln

Christine K. Lincoln offers sound counsel and legal services to protect clients and their families facing divorce and other family disputes.

She will take the time to understand your individual needs and develop a comprehensive solution to protect your rights and interests.

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