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TX high asset divorce lawyerDuring a high net worth divorce, you will need to address a wide variety of financial issues, and the decisions you make can have a significant impact on your finances and your ability to provide for your family in the future. As you address matters related to the division of property, spousal support, and child support, you will need to be sure to understand how these issues will affect your taxes. This will help you avoid surprises related to tax debts, unexpected tax obligations, or other concerns that could affect your financial stability. Some of the tax-related concerns that you may need to address during a high asset divorce include:

  • Filing status - Once your divorce is finalized, you will no longer file taxes jointly with your spouse. However, it may be beneficial to file joint tax returns if you were still married in the year(s) before your divorce, and you may need to work with your spouse to ensure that all relevant financial issues are considered, including how you will divide any tax refunds or who will be responsible for paying taxes owed. Following your divorce, you will likely need to make a variety of adjustments when filing as a single person, and you may need to review the deductions or exemptions that you may be able to take and determine the best strategies for minimizing your tax burden.
  • Dependents and child tax credits - If you and your spouse have children, only one of you may claim them as dependents and receive any applicable tax credits. In many cases, the custodial parent will claim children, although you may be able to negotiate an arrangement that will provide you both with the maximum tax benefits. Following your divorce, you should be sure to update your tax withholding information to make sure the correct amount of taxes is being withheld from the income you earn.
  • Taxes on alimony - In the past, spousal support was tax-deductible for the payor, and it was considered taxable income for the recipient. However, this changed in 2019. A payor can no longer deduct alimony payments, and a recipient will no longer need to pay taxes on spousal support. This can result in more overall taxes being paid and lower alimony payments. However, spouses may be able to find other arrangements that are more financially beneficial for both parties, such as allowing a spouse to receive a larger portion of the marital estate instead of alimony or creating a trust that will provide ongoing payments to the recipient.
  • Property taxes - Spouses will need to consider the taxes associated with any assets they will own after the divorce, including property taxes on the marital home, vacation homes, or any other real estate property. A spouse should be sure they will have the financial resources to pay these taxes on an ongoing basis.
  • Capital gains taxes - While taxes will not apply to any assets transferred between spouses within one year after their divorce is complete, the sale of assets such as stocks or real estate during or after divorce could result in capital gains taxes. Spouses should be sure to understand what taxes will apply in these cases and who will be responsible for paying them.
  • Retirement accounts - When transferring funds in accounts such as 401(k)s or IRAs between spouses, a Qualified Domestic Relations Order (QDRO) should be used to ensure that taxes will not apply to these transfers and that a spouse will not be required to pay penalties for withdrawals made before reaching retirement age. Spouses may also need to address the tax implications of dividing pension benefits or other executive retirement benefits.
  • Business taxes - If either spouse owns a business or professional practice, they will need to determine how taxes that apply to the business will affect the decisions made during the property division process and the income that they earn on an ongoing basis. As part of the business valuation process, spouses will want to consider the taxes owed by a business, whether the business is structured as a pass-through entity, and how business losses will affect taxes owed in the future.

Contact an Austin High Asset Divorce Lawyer

The attorneys of Powers and Kerr, PLLC can make sure you have fully considered the tax implications of the decisions you make during your divorce. With our extensive experience handling complex financial issues, we can help you reach a resolution that will protect your financial interests and allow you to provide for your family’s needs. Call our Austin, TX high net worth divorce attorneys at 512-610-6199.

 

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TX divorce lawyerAlthough dissolving a marriage always has the potential to be a complicated process, high asset divorces tend to be particularly difficult to resolve. This is largely due to the fact that the property division portion of high asset divorces is often extremely complex, as couples are required to take into account the significant tax implications of any settlement agreements. For instance, some of the most notable tax liabilities for which many high net worth couples should, but often fail to account for are capital gains assessed on the sale of the family home.

An experienced high asset divorce attorney can be instrumental in helping divorcing couples identify and limit exposure to potential tax liabilities, so if you and your spouse have decided to file for divorce, it is critical to contact an experienced high asset divorce lawyer who can ensure that your financial interests are protected.

What Is the Capital Gains Tax Exemption?

One of the most important tax breaks for married couples is the capital gains tax exemption. The capital gains tax is imposed on any sales of capital investments, such as real estate. For many couples, this means that they must pay a capital gains tax when selling the family home. Fortunately, single homeowners who decide to sell their residences can exclude up to a $250,000 gain. The benefit for married couples is even higher, as couples who jointly own a home can take advantage of a capital gains tax exemption that allows them to avoid paying a tax on profits totaling $500,000.

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