As your marriage devolves into divorce, so do your financial liabilities. For divorcing couples with significant assets, critical tax consequences may apply.
Breaking down and addressing possible tax considerations while processing your divorce proves to be a wise decision to prevent drowning in unforeseen debts and other obligations.
Tax-related concerns
Texas law imposes an equitable distribution of marital assets, which does not necessarily mean having your shared wealth divided right in the middle. Instead, the court decides what it deems fair, depending on your circumstances and other relevant factors.
These marital assets – investments, stocks, bonds or real estate – could be subject to capital tax gains or taxes collected from profits of sold assets. But if you sell it later, its value may increase, incurring possible future taxation.
Other tax implications include:
- Federal income tax: This applies to Texas as it is one of the few states that does not collect personal income tax. Your filing status would change from joint to separate taxpayers, which could result in more tax liabilities. If you also have a child, only one of you may claim applicable dependent tax credits, unless you agree on a settlement benefitting both parties.
- Property tax: Whoever gets the family home also becomes in charge of paying its property tax. But if you jointly own your home or any property, you may consider a transfer of ownership, which may entail taxes.
- Business tax: Whether you want to proceed with co-owning a business with your spouse or awarding the company to them, you must protect your business interests and receive the appropriate compensation.
If you are the primary wage earner or breadwinner, you may also name your spouse as the alternate payee for your retirement accounts. You may work out specific terms through a Qualified Domestic Relations Order to ensure they receive their share from your retirement funds without withdrawal penalties or taxes.
Planning for a favorable financial outcome
Taxes in a high-asset divorce can be highly technical as it involves strategic timing and exact calculations. Gathering a specialized team of financial and legal professionals will be invaluable to ease your complex worries.