Tax Considerations of Dividing Property in a Divorce

Tampa Family Law Attorney Looks Out for Hidden Tax Implications in Divorce Property Division Settlements

Divorce property settlements require the trusted advice and insightful representation of a knowledgeable attorney to identify and address tax considerations.

Even so-called “friendly” divorces can give rise to issues that pit the interests of one spouse against the other. The tax implications of property division arrangements and support matters cannot be overlooked in order ensure that what you think is a good settlement does not cause you to suffer long-term financial harm.

As a party to a divorce, you might not be in the best position to make decisions about your property division options. Situations that might arise during negotiations might include:

  • Weighing the value of assets against each other: Agreeing to an exchange of assets of equal value might not be a fair bargain if capital gains taxes must be paid on what you receive.
  • Hidden sources of income: Payments by your spouse could create a taxable event for you.
  • Pensions and retirement funds: Transfers can have tax implications if not structured correctly.

Anticipating changes related to the marital home:

The tax bracket changes and the loss of deductions that can occur because of a divorce and a property division can come as a shock when you file your first income tax return as a single person. Depending upon what is being done with the marital home and other real estate, either you or your spouse will be losing mortgage interest and real estate tax deductions that could have a significant impact on your income tax liability each year.

You should know before agreeing to a divorce settlement what your income tax situation might be in the year following the divorce. Either your attorney or your accountant should be able to give you an estimate of what to expect when you file your income tax return separately from your spouse for the first time.

Fighting over an asset without considering the tax implications can cause financial problems.

Particularly in divorces involving high net worth assets, the advice of an experienced attorney is essential when evaluating the tax considerations associated with the transfer of an asset. For example, accepting real estate or rare artwork in a property settlement might at first blush appear to be a good deal, but a review of the capital gains tax implications might make you reconsider.

Real estate and other assets that have significantly appreciated in value could be subject to capital gains taxes when you elect to sell them. Unless you factor those taxes in when negotiating your property settlement, the benefit to you might not be as great as you first thought.

Pensions and retirement accounts that are transferred according to a property settlement agreement could come with a tax liability. The transfer of some retirement accounts can be accomplished without tax implications or penalties, but others might require a Qualified Domestic Relations Order.  Knowing in advance what you will have to pay can help you to make decisions during negotiations.

Payments by your spouse to third parties could be taxable income to you.

There can be tax issues indirectly associated with property division settlements that could cause financial harm in the future. For instance, most people understand that alimony payments could be treated as taxable income to the spouse receiving them.

If your divorce settlement directs your spouse to make payments to third parties on your behalf, those payments could be treated as taxable income that you must report each year. For example, if you remain in possession of the marital home following the divorce with your former spouse making the mortgage payments to the bank that holds the mortgage, those payments could be treated as taxable income.

Learn how our skilled Tampa divorce lawyer can help you with property division during divorce:

The complexities of resolving financial issues brought about by a divorce can be overwhelming. At the Tampa Law Offices of Mark G. Rodriguez, P.A., a free consultation with an experienced Tampa divorce attorney can help set your mind at ease. Our family law attorney takes the time to review available options with you and respond to your questions and concerns. Call us today at 813-227-9642 to schedule an appointment, or you can contact us through our website.