Going through a divorce involves much more than just getting a piece of paper noting the legal end of your marriage. If you and your ex have assets together, you have to consider how the property division aspect of the divorce will affect your taxes and your estate plan. The answer to these issues isn’t always easy, but there are some fairly consistent points you should consider.
The marital home is usually the largest asset the couple has together. There are three general options that you have when dealing with the home. One option is that one spouse can buy out the other. Another option is that you can sell the home and split the profit now. The last option is that you can sell the home and divide the profits later.
If you make a profit off the home, you can reinvest the money within two years to avoid capital gains taxes on those profits. In order to do this, you have to have lived in the home three of the previous five years because the home has to be considered your principal residence.
In most cases, the transfer of assets from spouse to spouse aren’t taxed by the Internal Revenue Service. Of course, there are exceptions to this. One consideration in this matter is that you must be able to show that the divorce is the reason for the transfer of the assets.
The division of retirement accounts can also prove complicated depending on the circumstances. You should make sure that you understand how dividing retirement assets must be handled to minimize the tax hit you take.
Source: FindLaw, “Divorce, Taxes, and Your Estate Plan,” accessed April. 03, 2015