Tax Consequences of Asset Division

There are so many things to consider before divorce and during the divorce proceedings. Sometimes, very important issues get lost in the shuffle. Nonetheless, they can still have significant implications for post-divorce life. Tax consequences of asset division during divorce proceedings, for instance, can have substantial impacts on the finances of the former spouses. When finances are so often already under strain after a divorce and adjusting to post-divorce life, this can be a tough blow to accept after the fact.

Tax Consequences of Asset Division

There are a number of important tax considerations when it comes to divorce. The spouses will have to decide whether to file separately and itemize or use standard deductions. Both spouses must select the same method. Furthermore, the spouses will need to determine who will claim certain deductions and exemptions. Other important tax consequences come from asset division incidents to divorce proceedings. These consequences can be so significant that they should be taken into consideration when being awarded certain assets in the divorce.

As Florida is an equitable division state, a variety of factors are taken into consideration during division of the assets to help determine what division is fair to the parties. Because of this, tax liability is, in fact, taken into account during division of the marital assets. It can be important to understand the potential tax consequences of asset distribution as well as understanding how tax consequences can impact your ability to maximize the fair share of the marital estate that you end up receiving.

One prominent marital asset that can have big tax consequences when subject to equitable division is the marital home. The home is most often the costliest jointly owned asset. Divorcing spouses often have a number of options when it comes to the distribution of the marital home. For instance, the spouses can decide to sell the home and divide the proceeds right away. Alternatively, one spouse could buy out the other’s interest in the property so as to retain the residence himself or herself. The tax consequences of the marital residence’s sale should, however, be taken into account in evaluating these options. The parties could qualify for a tax exclusion if a gain is realized in the sale of the property. Married taxpayers can qualify for an exclusion of up to $500,000 if they jointly file during the year the property is sold and at least one of the spouses has owned the residence for two out of the five years prior to the sale. It should also be noted that should the marital residence be sold, the property transfer taxes are most commonly paid by the person who is selling the property.

Assets of appreciating value can also have significant tax consequences when it comes to division of the marital assets in a divorce. Over the course of a marriage, a couple may acquire any number of appreciating assets such as stocks, bonds, and other securities and investments. When considering the division of such assets, capital gains taxes should be weighed. Those assets that have greatly appreciated in value may be worth more at the time of asset division, but will also be subject to higher rates of capital gains taxation. Alternatively, those assets that have not appreciated significantly may be worthless at the time of asset division, but are also less likely to incur significant capital gains tax consequences.

Florida Family Law Attorneys

The team at Bernal-Mora & Nickolaou takes into consideration the complexities involved in the divorce process. We do this to best serve our clients and protect their interests. Contact us today.

About the Author
Andrew Nickolaou, Esq., B.C.S., is a founding partner at Bernal-Mora & Nickolaou, P.A. He practices almost exclusively in divorce, marital and family law. Andrew and his partner, Ophelia Bernal-Mora, Esq., B.C.S., joined forces in March 2016 to form the unique and boutique husband and wife family law team at Bernal-Mora & Nickolaou, P.A. Together, Andrew and Ophelia take a practical and team-based approach to all of their cases and clients to deliver the highest quality experience and representation.