Property division decisions in a divorce can be stressful and emotionally fraught. There may be significant tax implications of asset division in Southbury, which only adds to the pressure.
A seasoned property division attorney knows when to flag the tax consequences of various financial transactions. They can bring in tax professionals to help you avoid any unexpected tax liability after the marriage ends.
The Internal Revenue Service considers transfers of property between divorcing spouses, including alimony and child support, to be tax-neutral events. However, couples can inadvertently impact their tax liability during divorce. A Southbury lawyer will use their knowledge and experience to manage property division and all aspects of divorce to minimize events that could trigger tax consequences.
Divorcing spouses should recognize that property division does not exist in a vacuum. Decisions regarding child custody impact each spouse’s financial situation and tax obligations, as do decisions regarding selling or keeping real estate and brokerage accounts.
Assessing the tax consequences of every aspect of the divorce settlement is essential. Our firm has an extensive network of accountants and other tax professionals who can review a transaction and offer advice. The couple can then factor in immediate and future tax liabilities when determining an equitable split of their property.
Couples sometimes sell their family home to accomplish an equitable property division. If the home has been their primary residence for at least two of the preceding five years, they may be entitled to a capital gains tax exclusion.
The capital gains exclusion is larger for a married couple than it is for a single person. Sometimes it may make sense for a couple to sell their home while still married to take advantage of the larger exclusion. Selling a vacation home or investment property may trigger capital gains tax liability if the property sells at a profit.
If one of the spouses will keep the home, the couple will need to work out who takes the deductions for mortgage interest and property taxes and ensure the other spouse receives some comparable benefit. A Southbury asset division attorney working with a tax professional can help a couple evaluate these decisions and ensure that the resulting property division agreement is fair.
Other aspects of divorce can impact taxes. Considering these during the divorce proceedings can help spouses make realistic plans and choices.
When a couple is married on December 31 of a given year, they can file a joint tax return for that year even if their divorce becomes final before they file. There are usually financial advantages to filing a joint return. With an accountant’s advice, a Southbury lawyer can put language in the divorce agreement describing how the couple will divide a refund or tax liability.
Parents often share custody of children, but only one parent can take the dependent exemption. Parents can handle this in numerous ways—when there are multiple children, each might take the exemption for specific children. Sometimes, parents alternate years taking the exemption.
The exemption is dependent on the parents’ income, and it may be more valuable to one parent than the other. A tax professional can offer advice about handling the dependent exemption fairly.
Funds in pensions, 401k accounts, Individual Retirement Accounts (IRA), and other retirement savings vehicles are subject to division in divorce. There are several ways to manage tax liabilities on early withdrawals and transfers. In consultation with a tax professional, our firm can ensure a spouse understands the tax implications of dividing retirement and pension funds and is prepared for them.
The tax treatment of various assets has a significant impact on a specific property’s value. Understanding the tax implications of asset division in Southbury is essential to achieving an equitable distribution.
Our family law attorneys, working closely with accountants and tax lawyers, can ensure you understand the tax consequences of your asset division alternatives. Reach out to us today for guidance on dividing assets in divorce.
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