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Divorce and Taxes: Other Tax Implications

by Norris Law Group on September 18, 2014

Divorce and Taxes: Other Tax ImplicationsAs your divorce case moves forward and you and your ex-spouse come through all the details of the life you built together, taxes will surely be one of the things to rear its ugly head. Taxes may be of particular urgency if you are divorcing toward the beginning of the year, as “April 15” looms in the not-too-distant future.

MarketWatch, a Wall Street Journal site, breaks down five factors to consider regarding divorce and taxes. In our previous post, we took a look at how capital gains and taxes can apply to property in a divorce. This post examines how and why taxes may be incurred even if the tax-free transfer rule applies.

Factor #4: Tax Implications

A spouse who owns an asset that is at its full appreciated value (an “appreciated asset”) is responsible for any taxable gain upon the sale of the asset. For example, if one spouse owns a muscle car that was purchased at a low price and then restored so that it increased in value, the owner must pay tax on the full sale price, even if that it more than the purchase price. Some exceptions apply, such as an exclusion of gains on the sale of the family home (the “primary residence”).

Consider another example: your divorce settlement calls for your spouse to receive some stocks that you held long-term as a couple. Taxes won’t be incurred when the shares are transferred, due to the federal tax-free transfer rule. But the recipient is now under the same tax rules that would have applied if you had continued to own the shares together. He or she will owe any applicable capital gains taxes alone if and when your spouse sells the stocks.

To summarize, if you receive any “appreciated assets” in your divorce, you are liable for any taxes that may be associated with them.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

 

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