Tax Issues to Address in a High Net Worth Divorce

 Posted on December 24, 2020 in Complex Property Litigation

Every divorce case will involve financial issues that a couple will need to address as they divide the property they own and determine whether one spouse will pay financial support to the other. However, high net worth divorces will often require spouses to consider complex financial matters related to high-value assets, multiple real estate properties, investments, business interests, and different forms of income, including bonuses, executive compensation, and retirement plans. When determining how to handle these concerns in a way that ensures that each spouse receives a fair and equitable share of the marital estate, it is important to consider tax issues that can affect the spouses both during their divorce and in the future.

Common Tax Concerns in High Asset Divorces

Some tax-related issues that divorcing couples with a high net worth may need to address include:

• Capital Gains Taxes - Certain types of assets may be liquidated during the divorce process to ensure that their value can be divided between spouses. If these assets appreciated in value since they were acquired, capital gains taxes may apply to the profits earned, and spouses should be sure to understand who will be responsible for paying these taxes. When selling a marital residence, up to $250,000 of gains can be excluded from capital gains taxes when filing as a single person, or $500,000 can be excluded when filing as a married couple. These exclusions will be available if the person or couple lived in a home for at least two of the previous five years prior to the sale.
• Carryforwards - Business owners and others with high incomes can realize tax benefits by carrying forward certain types of losses, expenses, or deductions and applying them to future tax years. These may include carryforwards for capital losses, investment interest expenses, charitable contributions, or a business’s net operating losses, These carryforwards are considered marital assets, and they should be divided between spouses along with other types of marital property.
• Retirement Assets - Either or both spouses may own retirement savings accounts, or they may be eligible for pension benefits. Funds from these retirement accounts may be transferred between spouses as part of their divorce settlement, and to avoid paying taxes on these withdrawals, spouses should be sure to use Qualified Domestic Relations Orders (QDROs). Spouses may also want to work with a financial advisor to understand whether taxes will apply to pension benefits or other retirement assets either at the time of the divorce or when they begin using these benefits after retirement.

Contact Our Austin, TX Divorce Tax Planning Lawyers

With the proper planning, you can ensure that you will be on good financial footing following your divorce. If you and your spouse have a high net worth, you will want to be sure you have considered all aspects of your financial situation, including the income you earn, the assets you own, and the taxes that will apply both before and after your marriage ends. The attorneys of Powers and Kerr, PLLC can advise you of the issues that you will need to address, and we will help you negotiate a divorce settlement that will meet your needs, or we will advocate for your interests when litigating your divorce in court. Contact our Austin high asset divorce attorneys at 512-610-6199 to schedule a consultation and learn how we can help with your case.

Sources:

https://www.thebalance.com/tax-planning-for-divorce-3193488

https://www.cohencpa.com/insights/articles/6-important-tax-carryforwards-to-address

https://www.bnymellonwealth.com/articles/strategy/eight-critical-tax-considerations-for-divorcing-couples.jsp