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    « Larry Fitzgerald and Friends Celebrity Servers Night at Morton's Phoenix, Arizona 2010 | Main | Point/Counterpoint...Ground Zero Mosque, Rod Blogojevich and Roger Clemens »
    Saturday
    Sep042010

    Tax Lawyer Robert Wood...How To Make Divorce less Taxing

     

    (Forbes) Death and taxes may be prominently linked, but many Americans face divorce long before death, and a divorce can be almost as, well, taxing. If you're careful, it's possible to divorce and not face major tax bills. But a surprising number of tax flubs are committed every year in this area, even by professionals. Very slight differences in mechanics can yield huge tax differences for one or both spouses. What's more, your divorce lawyer may not be competent to address these tax rules so you may need a tax advisor.

    Here are 10 things about taxes and divorce you should know:

    1. Property settlements are tax-free.

    If you divide property between spouses (or within limits, even after marriage), Section 1041 of the tax code says there's no tax to either party. Enacted in 1984, this provision reversed a Supreme Court case that ruled property divisions were taxable. This tax-free rule means you can divvy up property between spouses however you want. (That's provided they're both citizens; if one isn't a citizen, there may be income and gift tax issues.) But when you divide property, you'd better consider future taxes and the tax basis of the property in addition to its fair market value.

    Example: Al and Betty are getting divorced and own a home worth $5 million, which they bought 30 years ago for $200,000. Betty is awarded the house. A year later Betty sells the house for $5 million. She has a whopping gain of $4.8 million, all of which is taxable to her!

    Al and Betty might have cash, securities and other assets to divide, some with a high basis, some with a low basis. It can be more equitable for each spouse to take a mix of high and low basis assets.

    Read the article at Wood and Porter

    

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