When a rich couple splits, divorce attorney Lowell Sucherman gets blunt.
“Look, I’ve been doing this for 50 years,” he says early in the negotiations. “I know how this case is going to come out within a few dollars.”
Find a fair way to settle quickly, he says, and you can save enough in legal fees to send your kid to college. Or, you can fight tooth and nail, he adds, “and I’ll send my grandchildren to college.”
His warnings only work some of the time.
This year though, some estranged spouses have a more powerful incentive than ever to call a truce: President Donald Trump’s 2017 tax overhaul eliminates the deduction for alimony payments — for divorces finalized starting in 2019.
For many wealthy couples, reaching a deal by Dec. 31 could mean tens of thousands of dollars in tax savings every year. That’s pushing more of them to finally follow Sucherman’s advice and cooperate as the deadline nears.
Divorce often means war for the top 1 percent. The richer you are, the more homes, possessions, investments and businesses there are to fight over.
In a single-income family, the non-earning spouse can be worried about being cheated by the earning spouse. The result is often expensive negotiations that stretch on for years, as each party tries to inflict maximum damage on the other.
Read more about how your prenup might be in jeopardy after tax law:
Alimony, also known as spousal support or maintenance, is typically paid by the higher-earning spouse for a period of time after a divorce. For decades, the payers of alimony have been able to deduct the payments on their tax returns.
Receivers of alimony, meanwhile, were required to report the money as taxable income. The tax overhaul reverses that arrangement, denying the tax deduction to alimony payers while making alimony tax-free to those who receive it.
Because the payers of alimony are almost always in a higher tax bracket than their exes, the new rules will mean less after-tax money to go around.
“We’re trying to get everybody divorced in 2018 who can be divorced in 2018,” said Linda Ravdin, an attorney at Pasternak & Fidis in Bethesda, Maryland. After finishing a trial in a complex divorce case recently, Ravdin said she urged the judge to render his decision this year.
Michael Stutman, a partner at Stutman, Stutman & Lichtenstein in Manhattan said he’s seeing more feuding couples open to negotiation as the alimony deduction deadline looms. “When you’ve got people pretty close to an agreement, the specter of losing that benefit is pushing people together,” he said.
Stutman is currently handling a divorce for a real estate mogul, and it’s taking a long time for two skilled forensic accountants to untangle the family’s holdings. The couple is “beside themselves” with how long it’s taking, he said.
‘Grease the Skids’
The old system of allowing for alimony deductions sometimes served as a way to “grease the skids” for a deal and make the payments less painful, said Peter Walzer of Walzer Melcher, a law firm in Los Angeles. Now the threat of losing the deduction is accelerating the process.