Dividing a family's assets is one of the biggest challenges for a divorcing couple. There are multiple approaches that can be taken, and each Alabama couple has a set of goals when it comes to splitting up their accumulated assets. When it comes to brokerage accounts, there are also serious tax consequences associated with various divorce choices. Couples should be aware of the tax obligations that accompany each option and make decisions that preserve the greatest possible share of wealth.
One mistake that many couples make is dividing shares of stock by simply splitting them down the middle. This approach ignores the fact that shares are often bought at different prices. When the time comes to sell those stocks, capital gains tax will be computed based on the difference between the purchase price and the sales price. This means that a spouse who walks away with stocks that were purchased for lower prices could incur a larger tax bill than the spouse who received the higher cost shares, even though the face value of the shares is the same at the time of property division.
Another issue can arise when one spouse simply withdraws funds from his or her IRA and deposits them into a personal bank account, with the intention of transferring half of the money to the other spouse. That decision will leave the withdrawing spouse with an income tax obligation for the full value of the assets. A better approach is to have the IRA broker divide the assets and transfer the appropriate share directly to the other spouse's IRA account.
By taking the time to think about the tax consequences of various property division choices, Alabama spouses can help avoid incurring unnecessary taxes. That leaves more money to be divided between the parties, which is always a good thing. Divorce will alter the financial standing of both parties; there is no need to further complicate matters by taking on additional taxes.
Source: The Huffington Post, "4 Hidden Tax Issues in Your Divorce", Stann Givens, June 13, 2016