My clients will often hear me say that a divorce is primarily a financial transaction. It is of course not ONLY a financial transaction, yet most of the non-parental and non-emotional negotiations boil down to the division of assets. It is imperative to have a lawyer who knows the tax consequences of the division of your assets and liabilities. Here is a straightforward example: In 2014, the IRS treatment of alimony changed. No longer is alimony taxable income to the recipient, nor is it tax-deductible by the payor.
Typical Tax Issues
When dividing a tax-deferred retirement account (401k or traditional IRA) as part of the divorce, the recipient must roll over his or her share of that account into a comparable account to avoid a taxable event.
Some accounts (such as Pensions) require the use of a Qualified Domestic Relations Order (QDRO) to divide the asset in the future. These are typical transactions all with known and expected tax consequences.
Complex Tax Issues
When there are even more complex tax issues to manage— such as the sharing of capital gains due to a good investment, the sale of a business, or perhaps a loss incurred following a bankruptcy or a tax liability after years of non-payment— a good attorney will bring in the appropriate financial expert.
Be sure your attorney can speak to your specific needs and tax concerns and does not resist the involvement of the appropriate tax professional; it is always better to have that expert involved from the start to advise as the settlement structure begins to take shape. I am the proud daughter of an accountant and I learn something new every time I interact with my fellow professionals in the world of accounting and finance. It makes me a better lawyer for you.
To talk further, please call us with any questions at 908.237.3098, or use this contact form.