When dividing assets during a Pasadena divorce, it’s important to be aware of the tax consequences of any asset liquidation. Judges and attorneys often discuss the value of assets before taxes, but the different tax liability associated with various types of assets can mean that what appears to be an equal division on paper is anything but.
For example, liquidating your 401-k could create a large tax bill for the following year. If you don’t have the money to pay the taxes when they are due, this hole can be hard to dig out of.
Selling your house can also create problems. Many people are not aware that the capital gains exclusion drops from $500,000 to $250,000 when the proceeds of a sale are split.
Typically, it’s best to avoid liquidating assets. Liquidating assets often creates a taxable event, but transferring assets between spouses is a nontaxable event. Even if you’re in the middle of a brutal divorce, keep in mind that you and your spouse share a common enemy: the IRS.
If you can’t get around liquidation, it’s important to get an appraisal to make sure you’re receiving a fair price for the asset that is being sold. If you're self-employed, obtain a business valuation for equipment, buildings/real estate, goodwill, customer lists, and your customer base before liquidation.
You may also want to have a visit with a skilled financial planner to determine what your post-divorce tax liability will be once all the changes in your financial situation are taken into account. In addition to the extra taxes incurred from liquidating assets, there may also be changes like the loss of child tax credits that need to be considered in order to avoid unpleasant surprises come April 15.
How Can We Help?
If you have questions about the best way to divide assets during a divorce, please call our office at (626) 683-8113 or email us at info@PasadenaLawOffice.com. Our Pasadena divorce attorneys can provide the legal representation you need to obtain a settlement that will ensure a secure financial future.