In the event of a divorce, standard practice dictates that couples will have to address financial issues in order to move forward in the division of property and when deciding whether spousal support will be required from one spouse or another.
In cases involving high asset divorces, the process may become more complex as a result of the financial issues associated with high-value assets, from real estate to business interests and everything in between. Tax issues will need to be addressed in order for each spouse to receive their fair and equitable share of assets. Thus, it is vital for all parties involved to learn how tax issues may come into play further down the road.
Common Tax-Related Concerns In High Asset Divorces
While each situation is unique, there are some common tax-related concerns a couple in the midst of a divorce may come across when dealing with a high net worth:
-
- Capital Gain Taxes: Some assets may be liquidated in the process of divorce in order for their value to be divided between divorcees. In the event these assets appreciate in the course following acquisition, capital gains taxes potentially apply to profits earned, and the couple must understand under whose responsibility it falls to pay these taxes.
In the event a marital residence is sold, 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. The exclusion will be available if the person or couple lived in a home for a minimum of two of the previous five years prior to the sale.
-
- Carryforwards: High-income earners including business owners who receive tax benefits by carrying forward certain types of losses, expenses, or deductions, and then applying these to future tax years. These include carryforwards for capital losses, investment interest expenses, charitable contributions, or a business’ net operating losses. Considered marital assets, carryforward should be divided between spouses in addition to other marital property.
- Retirement Assets: One or both spouses who own retirement savings accounts may be eligible for pension benefits. The funds in these retirement accounts can be transferred among spouses as part of the divorce settlement, and in order to avoid paying taxes on the withdrawals, couples should use Qualified Relations Orders (QDROs).
- It is in the best interest of couples to work with a financial advisor in order to understand if taxes apply to pension benefits or other retirement assets in the event of divorce or if they began using these following retirement.
- Child Tax Credits and Related Exemptions: Couples with young children will need to assess who will receive the child tax credits and any child-related tax exemptions moving forward. As a general rule, a parent with primary physical custody has the first right to claim a child as a dependent. An attorney, however, will likely advise a couple to consider an arrangement where the higher-income parent claims the children. This can produce additional tax savings.
- Filing Status: When a divorce is finalized, a spouse will no longer file taxes jointly with their former spouse. Following divorce, a spouse will make a variety of adjustments when filing as a single person, and a review of deductions or exemptions may be needed to determine the best strategies for minimizing the tax burden.
The Houston Law Offices of Douglas Ray York, P.C. Can Help You Navigate Complex Issues Related To High-Asset Divorces
While the decision to divorce is never an easy one, it helps to know you have a trusted and respected legal team working on your behalf to ensure your assets are protected. Assisting clients in Harris County on issues such as sole child custody, asset division, or high net worth divorces, and appeals and modification, York Law protects what you’ve worked hard for in the course of your life.
Don’t let the tax issues associated with your divorce discourage you from fighting for what’s yours! Contact our experienced Houston high net worth attorneys today!