In any divorce, the division of the couple’s assets and property is a key part of the dissolution of the marriage. When dividing assets, their tax implications should be considered as a key element of the settlement.
Tax implications need to be considered before entering the property division portion of the divorce process. This is because if the property and assets are not divided taking each piece’s tax benefits and burdens into consideration, one spouse can find him- or herself saddled with a considerable tax burden while the other enjoys tax benefits. This can result in unintended consequences that are not fair. Consider the following issues that can arise during the divorce process and if you are unsure about how they could affect your situation, contact me to discuss working through your issues together.
Transferring an Asset Can be a Taxable Event
Many individuals with a high net worth reached this point by owning a business. When an asset is owned by a business, transferring it one spouse can come with a tax payment. For example, transferring ownership of a company owned vehicle to one of the spouses can trigger a taxable gain that may include additional gain attributable to depreciation deductions taken by the company. Alternatively the transfer of the vehicle may be deemed income to the shareholder spouse.
Assets Themselves have Tax Values
When the court divides a couple’s property between them, it does so under the principle of equitable distribution. This means that the couple’s property is divided according to each partner’s financial and personal needs, rather than simply splitting the marital estate down the middle. This can carry difficult tax implications for both partners. For example, the partner who receives the couple’s marital home may incur a tax on its subsequent sale. Since there are certain amounts of gain on the sale of a home that can be excluded from tax and the amount is more for a married couple than a single person, timing the sale can be very important on your wallet.
Divorcing Couples Have the Option to File Their Taxes as Married or Single
But once your divorce is finalized, you must file your income taxes as a single filer. This will likely eliminate certain benefits that you received while you were married. But if your divorce is still pending on the last day of the calendar year, you can choose to file for that particular year as either married or married filing separately (in some circumstances Head of Household filing status may apply). For those finalizing a divorce neat the end of a calendar year, tax planning includes deciding in which year you will be divorced.
Work with an Experienced Chicago Divorce Attorney
To learn more about the tax implications you could face in your high asset divorce, contact me today to schedule your initial legal consultation. I am an experienced divorce attorney and I understand the issues you are facing during your divorce and those that can manifest after your divorce is finalized and can provide you with valuable insight to help you navigate this difficult, complicated process.
