One large factor in going through a divorce is making sure that the financial assets are reallocated fairly, and that any tax implications are dealt with properly. This blog will present a brief overview of how divorce and the transfer of assets may affect your taxes.
Splitting assets between each partner
Since transferring assets is an essential part of any divorce settlement, the IRS does not usually consider this as a taxable event. This just requires that there be sufficient proof that the transfer of assets was solely because of a divorce settlement.
However, if you and your spouse have investments such as artwork or stocks, these may result in a capital gains tax bill when you split them.
Selling the house
Generally, the best way to avoid being subject to a capital gains tax from the sale of your home is to make sure to reinvest the profit within two years. If this law is to be taken advantage of, you must be able to prove that it is your primary and permanent residence — the place where you have spent the most amount of time in the last three years.
Retirement funds can be considered as marital property when going through a divorce, just like a house or some furniture. So be prepared to have to split these too.
The law on tax when it comes to divorce settlements can be extremely complex, and it's important to make sure that you have an experienced and trusted lawyer that can advise you on the best way forward.
Source: FindLaw, "Divorce, Taxes, and Your Estate Plan," accessed July 07, 2017