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Public Law 115-97 signed into law on Dec. 22, 2017, commonly known as the Tax Cuts and Jobs Act (the “Act”) provides that effective with respect to any divorce or separation instrument executed after Dec. 31, 2018, or for any such instrument executed before such date and modified after, if the modification expressly provides that the Act applies, alimony payments will no longer be deductible by the payor spouse and includible in the income of the payee spouse. This provision is “permanent,” meaning it does not sunset on Dec. 31, 2025, as do some of the other provisions of the Act. It changed the law regarding alimony payments that had been in effect for over 60 years, since even prior to the enactment of the 1954 version of the Internal Revenue Code that gave rise to Sections 71 and 215 as we know them today.

An issue arises with respect to enforcing premarital agreements executed prior to Dec. 31, 2018, which provide for alimony should the parties be divorced, wherein the parties intended for such alimony to be deductible based on the law then long in existence, if the parties divorce after Dec. 31, 2018, when alimony is no longer deductible according to the Act. The court’s interpretation and treatment of these agreements may depend on the date on which the premarital agreement was executed, as well as the language of the agreement.

The Uniform Premarital and Pre-Civil Union Agreement Act, N.J.S.A. §37:2-31, et. seq., was enacted in November 1988 and, pursuant thereto, only governs premarital agreements entered after the date of its enactment. Prior thereto, New Jersey had no statutory provision with respect to premarital agreements. The court in Marschall v. Marschall, 195 N.J. Super. 16 (Ch. Div. 1984), addressed the conditions under which an antenuptial or premarital agreement, which defined the rights and obligations of a husband and wife in the event of a divorce, should be enforced and the related issues of burden of proof in a case of first impression.

The court noted that prior thereto, the traditional view was that courts recognized and enforced such agreements which defined rights in the event of death but not such agreements that dealt with divorce which were inconsistent with the preservation of marriage and thus contrary to public policy. More specifically, the court noted that such agreements should be granted “the same favorable treatment as a property settlement agreement.” A precondition to such enforcement outlined by the court included full disclosure by each party as to his or her financial condition including assets, income and other necessary information. Unconscionability would also bar enforcement, for example of an agreement that would leave a spouse a public charge or close to it, or would provide a standard of living far below that enjoyed both before and during the marriage. The court, citing Lepis v. Lepis, 83 N.J. 139 (1980), noted that antenuptial agreements should be regarded as subject to modification by reason of changed circumstances in the same manner as property settlement agreements.

In D’Onofrio v. D’Onofrio, 200 N.J. Super. 361 (App. Div. 1985), the plaintiff in the divorce contended the premarital agreement was inequitable, grossly unfair and unconscionable, and even if not void, then subject to modification based upon changed circumstances. The appellate court agreed with the conclusion reached by Judge Lesemann in the Marschall case regarding the enforcement of antenuptial agreements. However, the court did not find a need to decide on the issue of whether premarital agreements needed to be regarded as subject to modification by reason of changed circumstances in the same manner as property settlement agreements in the case then at hand, stating the subject is better analyzed in the context of a claim for alimony as opposed to equitable distribution. Interestingly, the issue arising as a result of the Act is with respect to alimony.

Later, in Rogers v. Gordon, 404 N.J. Super. 213 (App. Div. 2008), decided after the passage of the Uniform Premarital Agreement Act, the court considered the terms of a premarital agreement entered into before enactment of the Uniform Premarital Agreement Act, wherein defendant husband sought to have the enforcement of the parties’ premarital agreement found to be unconscionable because of the substantial change in circumstances, resulting primarily from his demotion from plant supervisor to machine operator in a family business. The trial court determined that enforcement of the agreement would be unconscionable because it would result in the defendant maintaining a standard of living far below that which was enjoyed during the marriage. The appellate court expressly noted that the Uniform Premarital Agreement Act by its terms did not apply to the parties’ 1981 agreement and therefore looked to case law with regard to the enforceability of such agreements.

Premarital agreements executed after the enactment of the Uniform Premarital Agreement Act however will also have two different standards of review and enforcement. As originally enacted (and until June 27, 2013), the burden of proof to set aside a premarital agreement was upon the party alleging the agreement to be unenforceable to prove, by clear and convincing evidence, that:

a. The party executed the agreement involuntarily; or

b. The agreement was unconscionable at the time enforcement was sought; or

c. That party, before execution of the agreement:

(1) Was not provided full and fair disclosure of the earnings, property and financial obligations of the other party;

(2) Did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided;

(3) Did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party; or

(4) Did not consult with independent legal counsel and did not voluntarily and expressly waive, in writing, the opportunity to consult with independent legal counsel.

d. The issue of unconscionability of a premarital or pre-civil union agreement shall be determined by the court as a matter of law.

N.J.S.A. 37:2-38.

The  amendment to N.J.S.A. 37:2-38, effective for agreements executed after June 27, 2013, deleted paragraph b allowing consideration of whether the agreement might be unconscionable at the time enforcement is sought. It also added to the introduction of paragraph c, in place of “That,” “The agreement was unconscionable when it was executed because that.” Finally, it added to paragraph d, “An agreement shall not be deemed unconscionable unless the circumstances set out in subsection c of this section are applicable.  In sum, after June 2013, the burden of proof to set aside a premarital agreement as a result of unconscionability became greater.

At the same time, in June 2013, subparagraph c of N.J.S.A. 37:2-32 was deleted, which paragraph defined an unconscionable agreement to mean an agreement, either due to a lack of property or unemployability, which would render a spouse without  a means of reasonable support or would make a spouse a public charge, or would provide a spouse a standard of living far below that which the spouse enjoyed before the marriage. Thus, even prior to the amendment, unconscionability appeared to be rather limited. Moreover, it was focused on the situation of the payee spouse, not the payor spouse. With respect to the elimination of the tax deduction for alimony payments, it is the payor spouse who is likely claiming unconscionability.

Another important factor in determining whether a premarital agreement providing for alimony and written during a time when alimony was deductible will be enforceable as written, now that alimony is not deductible, will likely be the language of the premarital agreement itself. Many such agreements are specifically written to indicate not only that the payor spouse will pay a certain amount in alimony or spousal support, but specifically state that such sum will be deductible from the taxable income of such payor spouse and included in the taxable income of the payee spouse. Thus the agreement leaves no room to argue the parties’ intent with regard to the tax ramifications. Where the parties’ intent with respect to payments and tax ramifications is known, and an adjustment based on the Act may be resolved with the intervention of an accountant or tax adviser to assist with calculations, is different than a case where the intent is not as clearly articulated.

That being said, there is still an issue in determining the after-tax adjustment to be made with respect to the payments because, as a result of the differing tax brackets, the loss of the deduction to the higher income payor is greater than the effect the inclusion would have had to the lower income payee.

For example, and to make it simple, assume husband and wife divorce post 2018 with no children. The prenuptial agreement executed prior to 2018 provided for husband to pay wife $8,500 per month ($102,000 annually) spousal support to be deducted by husband from his taxable income as alimony and included by wife in her taxable income as alimony. Husband has income of $625,000. If he cannot deduct the alimony, he is in the 37 percent tax bracket and pays approximately $197,000 in tax. If he can deduct the payments he is in the same tax bracket but pays approximately $159,000 in tax; a difference of $38,000. Wife has income prior to receipt of alimony of $110,000. If she is not required to claim the alimony in income, she is in the 24 percent tax bracket and pays taxes of approximately $18,000. If she has to claim the alimony she would jump to the 32 percent tax bracket and pay taxes of approximately $46,000; a difference of $28,000. Therefore, the solution is not simply to tell the payor to reduce payments by the loss of the tax benefit; here $38,000 because payee would then be receiving less than what payee bargained for; here annual payments of $102,000 less tax due to including it in income of $28,000, or $74,000 (not $102,000 less $38,000 or $64,000). A payee would have a strong argument that the adjustment should not provide the payee less than that which would have been provided but for the passage of the Act.

Additionally, the payor spouse must carefully consider whether the loss of the alimony deduction is significant enough to raise the issue of adjustment due to change in the tax law with respect to an otherwise favorable premarital agreement. Assuming the difference is significant, it is possible that other tax benefits can be negotiated in place of lost benefits. Such possibility and the need to calculate the net tax effect to both parties as a result of the change in the tax law due to the Act requires the input of accountants and/or tax attorneys or other financial advisers. As most cases in the family court are resolved without trial, it is anticipated that the parties will be able to resolve this issue without appearance before the family court.

If the parties cannot resolve the issue, family courts do appropriately take taxes into consideration when exercising their judicial powers and/or reviewing agreements. Painter v. Painter, 65 N.J. 196, 213 (1974). Moreover, the family court is a court of equity. To the extent it can enforce the clear intent of the parties by enforcing the agreement they themselves made solely by adjusting the alimony payments as written to offset the unexpected change in the tax law would be equitable, in particular, if not to make any adjustment would provide a windfall to the payee spouse.


Catherine Romania is a member of Witman Stadtmauer in Florham Park. Her practice is focused in tax, trust and estate law.