Don't dread divorces

Thanks to the federal Tax Cuts and Jobs Act of 2017, divorce lawyers and mediators know that December will be a busy time, with some of us working right up to the close of the courthouse on Monday, Dec. 31. Under the TCAJA, the alimony exclusion has been repealed for all separation agreements executed after December. We can only imagine the conversations we will be having in December when clients call looking for a divorce, only to learn that they have less than a month to write a separation agreement if they want to preserve the ability of the payor of alimony to exclude the payments from his or her taxable income. I prescribe aspirin and a possible solution. What if we could write a simple "placeholder" separation agreement to be executed before the end of December, wherein one or both spouses agree to pay a defined amount per month to the other spouse as alimony subject to an agreement of modification that defines all the terms of the divorce, including the alimony agreement, in a separation agreement to be filed in court in 2019 for approval? How can this be? Section 11051 of the TCAJA reads in its entirety as follows: "(c) EFFECTIVE DATE - The amendments made by this section shall apply to (1) any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act) executed after December 31, 2018, and (2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification." A divorce or separation instrument is defined as "(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree, (B) a written separation agreement, or (C) a decree (not described in subparagraph (A)) requiring a spouse to make payments for the support or maintenance of the other spouse." As Section 11051 states that any divorce or separation instrument executed before Dec. 31, 2018, is not affected by the TCAJA and such an agreement may be modified after that date, all that is needed is the signed separation agreement. So the clear language of the TCAJA does not require court approval or a divorce filing in court before Dec. 31, 2018, if you have a written separation agreement that preserves the alimony exclusion. This step appears to satisfy the federal statute and gives clients time to work out a sensible separation agreement without ruining their holidays - or yours. Based on this analysis, I will be suggesting to my mediating clients Bill and Sally that if they want to have taxable and excludable alimony in their agreement, they consider writing a simple divorce or separation instrument and execute it before the end of December. A divorce instrument that contains the following paragraph should be sufficient to satisfy the requirement of the TCAJA: ----- SEPARATION AGREEMENT UNDER TCAJA SECTION 11051 "On or before the first day of each month after the date of this Agreement Bill shall pay Sally one third of the difference in our incomes during the prior calendar year or $10.00, whichever is greater. Such payment shall be considered alimony excludable by him and taxable to her for federal and state income tax purposes. Such obligation shall terminate upon the first to occur of the death or legal remarriage of Sally or â?¦ (a date specified in accordance with state law). If we do not have the time or readiness to provide any further provisions in our Separation Agreement before December 31, 2018, we shall modify this Agreement as soon as we agree on such terms and provisions after January 1, 2019, and until such modification this Separation Agreement shall remain in full force and in effect." You should feel free to adapt and improve this language as you wish - and sleep better knowing that your clients need not take away any remaining holiday spirit and activities in order to rush to sign much more than this simple paragraph before the end of 2018. ----- John A. Fiske is of counsel at Healy, Fiske, Richmond & Matthew, a Cambridge, Massachusetts, firm concentrating in family law and mediation. Published: Mon, Nov 19, 2018