High Asset Divorce Tax Implications

 Posted on July 31, 2019 in Complex Property Litigation

Many people know that dividing up marital assets is one of the most difficult aspects of divorce, as appraising and determining who will retain which assets is a complicated process. However, few couples realize that one of the most complex aspects of the property division process is actually having to account for the tax implications of retaining or transferring certain types of property. To learn more about the tax-related issues that you should take into consideration during your own divorce, please contact an experienced high asset divorce attorney who can advise you.

Tax-Free Transfers

Couples who have filed for divorce and are in the middle of the property division process should remember that only property transfers that are made within one year after the dissolution of a marriage are considered income tax-free. No deductible loss or taxable gain can be declared during this time period, although once a year has passed, any transfers made by either party can be evaluated by the IRS.

Alimony Payments

Under recent changes made to the U.S. tax code, alimony payments will no longer be tax-deductible for the payer and will also no longer qualify as taxable income for the recipient. For these reasons, couples who are in the midst of a divorce should think carefully when negotiating a settlement involving alimony payments.

Retirement Accounts

Although the retirement accounts of many couples are tax-free for the time being, certain accounts, such as IRAs will be taxed when they start paying out, so it is important for couples to take this into account when planning for their financial futures. Dividing workplace 401(k)s, on the other hand, could be subject to immediate taxation. To avoid this, a couple may need to seek a Qualified Domestic Relations Order (QDRO) from a family law judge.

Property Settlements

Under the U.S. tax code, property settlements reached during a divorce are not usually taxable to either party. However, this is not always the case, especially in high asset divorces, where a property transfer could be subject to either income or gift tax. Furthermore, it’s important to remember that even when a property settlement is not taxable, it will most likely be taxable in the future.

Call Today for Help with Your Case

While financial and tax considerations often take a backseat to the emotional toll that dissolving a marriage can take, a lack of proper focus on the property division process can result in costly tax errors. For help ensuring that this does not happen to you during your own divorce, please contact one of the dedicated Austin, TX high asset divorce lawyers at Powers and Kerr, PLLC today. You can reach a member of our legal team by calling 512-610-6199, or by completing one of our brief online contact forms.

Sources:

https://www.law.cornell.edu/uscode/text/26/1041

http://www.forbes.com/2010/06/11/divorce-taxes-alimony-child-support-personal-finance-robert-wood.html