Divorce is an unfortunate reality in the U.S. If a person plans to get a divorce; they should pay careful attention to their tax liability before dividing marital debts and assets. Readers can visit the website to learn about divorce’s effects on estate planning and tax liability.
Transferring Assets from One Spouse to Another
The Internal Revenue Service doesn’t consider asset transfers between spouses as taxable events. As long as a spouse can prove that the transfer was driven by the divorce, they can transfer assets without tax penalties. If spouses have substantial assets such as antiques, bonds, stocks and mutual funds, they can be hit with a capital gains tax as division occurs.
In most marriages, the home is the most valuable joint asset. When a divorce occurs, spouses have three choices: selling and dividing the proceeds, selling and splitting the money later, or allowing a spouse to buy out the other person’s share. Spouses can avoid capital gains tax if they reinvest the proceeds within two years of the sale. Divorcees can have a hard time following this rule if a settlement allows a person to stay in the home for over two years before the sale.
A retirement fund can be regarded as a marital asset during a divorce, and a spouse may be forced to share the proceeds of the fund. If the other spouse has a claim on a portion of a retirement fund, the owner must follow tax rules when taking distributions. An IRA is a good way to keep the other spouse from claiming some or all retirement funds, but if contributions are made during the marriage, the other spouse is entitled to a share of the assets.
For a married couple, filing a separate tax return is costly. If spouses can continue filing jointly until the divorce is finalized, they can save a significant amount of money. However, caution should be taken because spouses can be held liable jointly for tax penalties. A divorce attorney in Martinsburg, WV, can recommend the right way to handle tax situations during a divorce.
Spouses should hire divorce attorneys for help with tax, retirement, and home sale questions. A divorce attorney in Martinsburg, WV, can help couples with custody, financial and child care arrangements and an attorney can also inform clients of the tax ramifications of asset division.