At the end of a marriage, it can be useful to consider the tax implications of the pending divorce, especially for individuals with high amounts of valuable assets to divide. If a person fails to understand how taxes affect the division of property, real estate and retirement accounts, he or she is less likely to have a surprise tax bill waiting once the divorce becomes final. By following proper procedures and timelines, a person can minimize the tax burden of splitting assets with a spouse.
Property division will likely begin with the location and valuation of assets. Once the financial assets are all out on the table, you can begin to work with your soon-to-be ex-spouse to decide how and when to divide assets and determine what tax impact may accompany the transfer. For some financial accounts, a person must adhere to Arizona state laws regarding the division and transfer of assets.
Is the transfer of my assets taxable?
The transfer of assets between spouses is often not a taxable event in the eyes of the IRS if the transfer is clearly associated with the pending divorce. So long as the breakup is the reason for doing so, you can transfer cash and assets tax-free. However, accumulated assets are subject to capital gains taxes. Examples of assets that may be subject to capital gains would be artwork, stocks, bonds and mutual funds.
Is the sale of my home taxable?
The sale of the marital home is another common consideration during divorce. You can typically avoid paying a capital gains tax on the sale of the home if the home was the principal place of residence for at least three of the last five years. When settling a divorce, you may wish to keep this in mind, especially if the other spouse resides in the home for a period of time before it is sold and you do not.
Are my retirement accounts taxable?
You and your spouse may split retirement accounts if they are marital property. You may have to share these funds, and you will have to adhere to tax laws when doing so. A document known as a Qualified Domestic Relations Order will enable a person to distribute retirement funds to an ex-spouse without a tax penalty. A divorce decree can determine the division of IRA funds, but unless they are rolled into another IRA fund, they are subject to an income tax.
How can I find help?
Tax laws are notoriously difficult to understand, and they change often. During the course of a divorce, individuals may wish to brush up on their understanding of the current tax laws, both federally and in their state. A person may consider using the skills of an experienced attorney who can assist with tax implications as well as other issues of divorce.