Any divorce comes with a host of legal and financial considerations, but divorcing couples with significant marital property and assets face their own set of special considerations. Both during the divorce process and after finalization, high-asset separations often run into complex tax consequences.
The tax implications of a high-asset divorce can be difficult to understand. Knowing how these implications may impact proceedings can help you to prepare for your financial future as a newly single individual.
1. Filing status
As a married couple, you had the option to file taxes jointly with your spouse. When the divorce is final, your filing status will change from married to single, which can alter your eligibility for certain deductions, exemptions or credits at tax time.
2. Capital gains
Should you or your spouse sell assets during or following divorce proceedings, this income may introduce capital gains taxes. This becomes increasingly complicated when the sale of an asset, such as stocks or real estate, reflects a change in value from the date of the asset’s acquisition to the date of liquidation.
3. Asset transfer
Equitable division of marital property is crucial for fair divorce proceedings. While the majority of asset transfers as part of a divorce process are tax-exempt, some circumstances may fall outside of property transfer guidelines with regard to taxable gains and losses.
4. Retirement accounts
In order to settle retirement accounts in a divorce, couples should pursue the proper channels to ensure transfers are not subject to taxes or penalties. As well, dividing retirement benefits and pension accounts should keep any potential tax implications in mind.