Every Florida resident knows that the end of a marriage will necessitate a division of marital wealth. Most people are also aware that there will be tax ramifications associated with various property division choices. Going into a divorce with a solid understanding of how taxes will impact each party’s bottom line can make it easier to structure a property division that will retain the highest level of wealth for both sides.
For couples who will be dividing brokerage accounts, it is imperative to go into the process with a game plan. There are capital gains taxes that will come due on certain types of investments. For example, if a couple bought shares in a company at two different times and at two different prices per share, the capital gains on those shares would be based on the difference between the purchase prices as well as the value at the time of division. That means that the shares should be divided equally between spouses, with each party receiving a portion of shares bought at the different prices.
Another common error that spouses make during a divorce is for one spouse to withdraw money from an IRA and deposit those funds into a personal bank account, with the intention of giving the other spouse his or her share from that same account. The issue here is that the withdrawing party would incur income tax on the amount that was withdrawn, including the portion later given to the other spouse. The best way to avoid this outcome is to have the funds transferred directly from one spouse’s IRA into the IRA of the other party.
These are just a couple of the more common tax issues that can arise during a Florida divorce. Just as no two marriages are exactly alike, no two couples will have the exact same property division needs. Understanding how to minimize the tax impact of various divorce options can mean more wealth for both spouses, which should be a goal shared by all Florida spouses who are preparing to divorce.
Source: The Huffington Post, “4 Hidden Tax Issues in Your Divorce“, Stann Givens, June 14, 2016